Howdy, Partner!
A lot of small business information available today focuses on LLCs. And while we are big fans of LLCs, there is a more direct and simple solution to get a business going. That solution is a partnership.
While forming a partnership is as simple as agreeing to grow a business with someone, there is a laundry list of pitfalls to consider. First, and most important, is the unlimited liability for the owners, who may be financially and legally liable. Secondly, a lack of formalities could lead to internal disputes over payment distributions and earnings allocations. Finally, there are ongoing continuity questions that arise if one of the partners dies or otherwise becomes unable to perform their duties.
The good news, for those seeking simplicity, is it is relatively easy to set your partnership up for success. As always, insurance solutions can mitigate some liability issues. Partnerships may consider registering with the Department of State, even though it is not required. Along with registering, the partners should consider drafting a partnership agreement that sets out each partner’s obligations and how to handle transitions if a partner leaves or dies.
Partners may also consider forming a limited liability partnership (LLP). In an LLP, one of the partners assumes managerial responsibility, subjecting themselves to liability for the partnership’s actions. When one partner becomes a managing partner, the remaining partners are considered limited partners and are protected by a liability shield, so long as they do not assume any managerial responsibilities.
As far as taxes go, partnerships are pass-through entities just like an LLC. Yet another element of simplicity. So if you want to start a business and you are looking for ease of operation, go full cowboy and say, “Howdy, Partner!”
If you have questions about your business structure, give us a call at 724-550-6970.
*Disclaimer: this article is for informational purposes only. It is not providing legal advice. It does not create an attorney-client relationship.