How to Form a Partnership

How to Form a Partnership
 


When you’re starting a business with someone, you want to be smart about it.

You’ll automatically form a partnership with them from day one.

And that can have all sorts of legal consequences.

Here’s how to form a smart partnership…

1. Automatic Partnership

How to Start it

This partnership is formed when you start a business with multiple owners.

It’s automatic. It doesn’t require you to file anything or pay any fees.

Benefits

In this partnership, you’re personally liable for you and your partners actions.

That means you may have to use personal assets, like your house, car, or bank account, to pay for business debts, contracts, or lawsuits.

If your partner racks up a business debt, you may have to pay it.

Yikes!

Tips

In that case, you’ll want to know your partner well.

It’s also a good idea to have a partnership agreement to avoid legal drama.

And you should think about starting an LLC or Corporation so you won’t be personally liable for you or your partner’s business debts.

2. Limited Partnership

How to Start it

This partnership is formed by registering it with the state.

Benefits

It creates two forms of partners: general partners and limited partners.

General partners are involved in running the business and they are personally liable for everything that happens in the business.

Limited partners are silent investors who have no involvement in the management of the business. They are not personally liable in the business.

Tips

Typically, we don’t recommend this partnership.

An LLC or Corporation is likely more beneficial because you’re not personally liable for anything that happens in the business.

 

3. Limited Liability Partnership

How to Start it

This partnership is formed by registering it with the state.

Benefits

In this partnership, you’re not personally liable for your partners actions. That’s a good thing. But you are personally liable for your actions in the business. That includes contracts, debts, and lawsuits.

Tips

Typically, the only reason we recommend this partnership is when you’re part of a licensed profession (like an accountant, architect, doctor, or attorney) and the state requires that you form one.

 

 

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How to Start Your Business Legally

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