In 2020, according to the Internal Revenue Service (IRS), the United States was home to more than four million partnerships, a type of business structure that presents several advantages, including the ability to pool resources and enhance the company’s overall skillset. That said, the recommended approach is not to make a rash decision but to consider various elements of the partnership beforehand, including the number and identity of the business partners and how to split the responsibilities, profits, and losses.
Read about the main things to know when entering a partnership and discover how a New York business litigation attorney from Schwab & Gasparini can aid partnerships by calling their Syracuse office at (315) 422-1333, their Albany office at (518) 591-4664, or their Hudson Valley or White Plains office at (914) 304-4353.
The IRS defines a partnership as an arrangement whereby two or more individuals decide to operate a business together. In these firms, each partner contributes labor, property, skills, and money while sharing the company’s profits and losses, regardless of whether a formal partnership agreement exists.
Both partners file annual returns to report the company’s income, losses, gains, and deductions. However, rather than each individual paying income tax, the business passes these profits or losses through to the partners, who then note their share of the company’s profit or loss on their own tax return. In this sense, they do not act as employees.
Business partnerships are classified according to their distribution of liability and their tax filing requirements. Below is more information concerning the three primary partnership types for profit-making enterprises.
This kind of arrangement occurs when all the partners equally share the business’s financial and legal liability. Crucially, any debt responsibility extends beyond their initial investment.
Popular among professionals, this structure limits each party’s liability. This means the other partners’ personal assets are safe if someone files a lawsuit against one of the partners or if the firm cannot afford to repay its debts.
In this structure, one individual is a general partner. This individual is personally responsible for the company’s debts. The remaining person or persons, known as the silent partner(s), will have limited liability and typically will not participate actively in the business’s day-to-day operations or management.
Like most cooperative endeavors, business partnerships tend to run more smoothly when all involved share a set of agreed-upon rules of engagement. Five of the most recommended rules for partnerships include:
Effective partnerships occur when all partners share the same goals. Remembering the reason for starting the business in the first place can provide the required energy and commitment to succeed.
Good business partners are typically compassionate people who can provide complementary skills. For example, one partner with exemplary networking skills but needing a business idea could complement another person with a strong company concept but poor social skills.
This involves developing short-term, realistic, and flexible milestones that can help drive business momentum. The focus on achieving these goals may be more sustainable when the goals are explicitly stated and when all partners agree on their prioritization.
Successful partnerships usually consider their long-lasting commitments, such as building trust among consumers, suppliers, and the wider industry. Commitments should ideally reflect the ethos of the partners individually and the business entity.
Aim to be authentic, communicate openly and honestly, and develop a shared understanding of the company and its vision. Touching base frequently, checking in with updates when nothing is wrong, and soliciting regular input from the other partner(s) can all be effective techniques for fostering effective collaboration as a business grows.
Find out more about the considerations when entering a partnership and see how a seasoned New York business litigation lawyer can assist these kinds of firms by getting in touch with Schwab & Gasparini.
The following are things to take into account when initiating a partnership:
Ask a potential partner the following questions before agreeing to join the partnership to assess their financial background, business acumen, personal interests, and trustworthiness:
Alongside outlining which partner can bind the company to a contractual agreement, such as a loan, and how the company intends to handle a party’s departure from the business, four of the key details often found in partnership agreements include the following:
Even when the partners have the same values, writing up the terms instead of relying solely on a spoken agreement can help protect all parties’ interests and the overall business. Consider reaching out to a lawyer to gain assistance with constructing an effective partnership agreement.
Learn more about the key things to know when entering a partnership and explore how a New York business litigation attorney from Schwab & Gasparini can address your legal concerns by calling (914) 304-4353 for their White Plains or Hudson Valley office, (315) 422-1333 for their Syracuse location, or (518) 591-4664 for their Albany branch.
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