If you’re thinking about starting a business, then you have a lot of decisions ahead of you. While hiring and marketing might immediately come to mind, before you get to that point you’ll have to figure out what legal business structure will best position you for success. While you have a lot of options at your disposal, this week we’d like to provide you a brief look at the partnership.
How a partnership works
In its most basic terms, a partnership is a business that is created through a formal agreement by two or more parties with the understanding that expenses and profits will be divided amongst those parties. The split doesn’t have to be equal, which is a matter that you can address in a partnership agreement, a document that can also spell out each partner’s responsibilities.
The benefits of a partnership
Many business owners turn to the partnership structure for two reasons. First, it allows them to retain a significant amount of control over how the business is operated. Second, the partnership structure allows business owners to obtain tax benefits. This is because income is not taxed at the business level and then again at the individual level, as is the case with a corporation. Instead, profits are only taxed once paid out to the individual partners. This can save the business a significant amount of money and lead to more income for partners.
The drawbacks of a partnership
All business structures have their disadvantages. When it comes to partnerships, many people are put off by the fact that each partner is personally liable for the business’s debts and liabilities. This can be a big risk, but there are also ways to limit that liability, so that fear shouldn’t be enough to put you off from considering this business structure in its entirety. Instead, if you’re interested in maximizing your profits while retaining control over your business, then now may be the time to discuss your business formation with an experienced attorney.