two business partners going over charts
One of the most common business structures, a full general partnership involves two or more partners that share all avails, profits and liabilities of a business. — Getty Images/Ridofranz

Deciding to go into business for yourself is a major decision on its own — simply deciding to join forces with a partner is a completely unlike ballpark. If you're thinking well-nigh starting a concern with a partner, consider structuring your business organisation equally a general partnership.

General partnerships are 1 of the most common legal business entities, granting ownership to two or more people who share all assets, profits and liabilities. In a general partnership, information technology'south important to empathise that each person is responsible for the business and is liable for the actions of their partner(southward). To help avoid any issues with your partners throughout your business organisation journey, y'all'll want to write a partnership agreement earlier moving forward.

[Read: What Is a General Partnership? ]

What is a partnership agreement and why practise you need i?

Nolo noted that, because you lot and your partners are equally responsible for the business organisation as well as the outcomes of i another'due south decisions, creating a partnership agreement is a not bad way to structure your relationship with your partners to best suit your business.

Partnership agreements are a protective measure to ensure any and all disagreements can be resolved quickly and fairly, and to empathise what to practise in the result that the partners wish to deliquesce the working relationship or business in its entirety.

What should be in a partnership agreement?

Your partnership understanding needs to cover a lot of footing. According to Investopedia, the document should include the post-obit:

  • Name of your partnership. While information technology may seem like common sense, i of the first things yous and your partner(due south) must agree on is the proper name of your business organisation.
  • Contributions to the partnership and percentage of ownership. Create a listing of specific contributions you lot and your partner(s) will make to the business organisation. In addition to contributions, y'all must make up one's mind on the pct of buying, which is typically dictated by each partner'southward contributions to the business.
  • Segmentation of profits, losses and draws. You lot and your partner must decide how to divide the business organization'south profits, losses and draws. Partners can hold to share the profits and losses in accordance with their percentage of ownership, or they can be distributed equally amongst the partners regardless of buying stake.
  • Partners' authority. Partnership say-so, also known as binding power, should exist defined within the partnership understanding. The ability to demark the business to a debt or a contractual agreement tin can expose the business to unnecessary run a risk, which is why the partnership agreement should explicitly state which partner(s) have binding authority.
  • Withdrawal or death of a partner. While no ane wants to consider the possibility of a partner'south withdrawal or untimely death on the brink of launching a new concern, this is something that needs to be conspicuously stated in the partnership agreement. The agreement should also outline the valuation process for the business and/or any requirements for maintaining a life insurance policy designating the other partner(due south) as the beneficiaries.

To avoid conflict and maintain trust betwixt you and your partner(south), be sure to hash out all business goals, the commitment level of each partner and salaries prior to signing the agreement.

Advantages and disadvantages of a partnership

At that place are several advantages and disadvantages of a general partnership. Some advantages include:

  • Being easy to establish.
  • Simplifying your taxes.
  • Being piece of cake to dissolve.

The two principal disadvantages of general partnerships are:

  • Personal assets aren't protected.
  • Partners are liable for each other.

How do you lot structure a fifty/50 partnership?

According to UpCounsel, under a 50/50 partnership, each partner has an equal say in the overall operation and management of the business. Structuring a 50/50 partnership requires consent, input and trust from all business partners. To avoid conflict and maintain trust between you and your partner(s), be certain to discuss all business organization goals, the delivery level of each partner and salaries prior to signing the understanding.

Additionally, before you typhoon or sign a partnership agreement, be sure to consult with an experienced concern attorney to ensure anybody'southward investment in the partnership and business is protected.

CO— aims to bring you inspiration from leading respected experts. However, before making whatsoever business concern decision, yous should consult a professional who can advise you based on your private state of affairs.

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Published October 22, 2019