Partnerships – Should You Form One?

A partnership is created when two or more persons jointly own and operate a business. Although a written partnership agreement is often used, sometimes partnerships are created through conduct or by verbal agreement instead of with a contract between the partners.
When people refer to a partnership, they usually mean a general partnership. General partners typically share profits and losses equally. The down side to this arrangement is that one partner can create liability both for the partnership and for the other partners. If there is a lawsuit, the partner with the deepest pockets can end up paying the damages even if that partner did nothing wrong. General partnerships can be dangerous because of this potential for liability.

To reduce liability, different types of partnerships have been created over the years. This includes limited partnerships and limited liability partnerships. Your lawyer can discuss the pros and cons of each. Many business owners don’t want the headaches of a partnership in any form. Instead, they find it more beneficial to operate as corporations or limited liability companies.

In addition to liability issues, each type of entity has taxation issues. You may want to discuss your options with your certified public accountant (CPA) in addition to your lawyer before making a decision.

Buy-Sell Agreements Can Protect Ownership of Your Business

A buy-sell agreement, also known as a buy-and-sell agreement, allows business owners to make arrangements by contract for surviving owners to buy out the interest of a co-owner who dies or decides to leave the company. Whether your business operates as a partnership, a corporation, or a limited liability company, a buy-sell agreement can help you plan for the future.
This type of contract can provide for mandatory or optional purchases of an owner’s interest upon death, divorce, bankruptcy, retirement, and other events. Because you, your co-owners, and your company operate under unique circumstances, a one-size-fits-all approach usually doesn’t cut it when creating a buy-sell agreement.

You should prepare to make the best of all circumstances that can trigger a buyout so that your business continues operating and each owner benefits from the advance planning made in the buy-sell agreement.

And because circumstances often change both on a business and personal level, it is important to have any existing buy-sell agreement reviewed on a regular basis with your lawyer to ensure that it still accurately reflects what you want.