Starting up a small business can be exciting. Finding someone who shares the same vision and balancing your skills can make that feeling even better. This “someone” can be anyone, from long-time friends to someone you recently met. Regardless, businesses can thrive or fail.
A business with more than one owner can get complicated. As you take the next steps towards working together, consider everything that comes with a business partnership, from personal to legal understandings on both ends, with complete clarification. Things can flourish or they can just as easily come crashing down pretty quickly. If you work hard enough, you will stay afloat through all the rough patches and come out victorious!
What Does A Business Partnership Mean?
Simply put, you create a business partnership when two or more people are listed as owners of the organization. They register through the state that the business will exist in. Although not everyone may have the same say in the day-to-day operations, all partners share the business’s profits and losses. When it comes to taxes, the partners get taxed on their personal tax returns and not the actual business (depending on the form of the partnership/corporation you elect to form).
Also, consider the types of partnerships within the business. General partners, for instance, make the decisions with only some liability and responsibility for debts and obligations. There’s also limited partners who will contribute to the business somehow, but do not make any day-to-day decisions. A limited liability partnership would allow all partners to be shielded from the normal partnership activities.
Understanding the Business Partnership Agreement
The most significant part of a business partnership comes down to the contract agreement made. This will breakdown some of the essential aspects of responsibility and come in handy during any sort of legal dispute. This means knowing who makes decisions, what happens if someone wants to leave, and knowing how to resolve disputes.
Knowing who can contribute what to the business at the start can mean a lot. Maybe someone can put in more money, but not deal with the day-to-day aspects, and someone else can put in the work but not that much money. How you balance out the percentage comes down to the agreement you make with your business partner.
Profits and Losses
One of the most essential parts of any business partnership is knowing how the money will get allocated. It typically goes by proportion to a partner’s ownership interest, but that can easily change. Know if anyone can take draws and have a complete understanding of these situations. Money problems are the most common reason business partnerships fail.
KGP Knows Business Partnerships
If you and your potential business partner want insight and advice on starting a successful business, Kecskes, Gadd, & Parker, PC can help. Establishing the legal boundaries for a partnership will make the entire operation work more smoothly and successfully. To see how we can help with your partnership agreement, call us today!