A Partnership: What Is It?

By The Law Office of Yoel Molina.
 
A company with multiple owners that haven't submitted paperwork to the state to become a corporation or LLC is known as a partnership (limited liability company). General partnerships and limited partnerships are the two fundamental forms of partnerships. The most straightforward and affordable co-owned business structure is a general partnership. However, there are a few crucial details about general partners' personal liability that you should be aware of.

A partnership is, by definition, a company with more than one owner that hasn't submitted paperwork to the state to become a corporation or LLC (limited liability company). Partnerships can be divided into two categories: general partnerships and limited partnerships. This article addresses general partnerships, the more typical form of organization where each partner participates in corporate management.
 
The partnership is the most straightforward and affordable co-owned business structure to set up and run. Before you start, you need to be aware of a few crucial details.
 
Personal Responsibility of Each Owner:

All business debts and responsibilities, including court judgments, are first and foremost individually accountable to partners. This implies that a creditor, such as a supplier, lender, or landlord, may lawfully seize any partner's home, car, or other property if the firm itself is unable to pay the creditor.
This personal liability does have a few exceptions. If the partnership is organized as a limited partnership, some of the partners may be subject to some degree of personal liability. In this partnership, only the general partner, who manages the business, is personally liable, and the limited partners, who are essentially passive investors, are only at risk of losing their investment in the partnership.
 
Taxes on partnerships:

The IRS refers to a partnership as a "pass-through entity," meaning that it is not a separate tax entity from its owners. Because of this, the partnership as a whole does not pay income taxes on its gains. Simply put, business income "passes through" the company to the partners, who then record their proportionate share of profits (or losses) on their personal income tax returns. Partners in a partnership may be eligible for the 20% pass-through deduction provided by the Tax Cuts and Jobs Act as an owner of a pass-through business entity, allowing them to write off 20% of their business revenue.
 
Establishing a Partnership:

An ordinary partnership can be created by simply deciding to do business with another individual; no paperwork is required to do this.
The same municipal registration requirements apply to partnerships as they do to new businesses, of course. The majority of towns and counties demand that companies register with them and pay at least a minimal amount of tax. A seller's license from your state, an employer identification number from the IRS, and zoning permission from your neighborhood planning board may also be required.
Additionally, you might need to register a false or assumed business name for your partnership. You must typically register a fictitious or assumed business name with your county registrar if your business name does not include the last names of all of the partners.
Although a written partnership agreement is not legally needed, it makes sense to put the specifics of ownership, such as the partners' rights and obligations and their share of profits, into a written agreement.
 
Dissolving a Partnership:

One drawback of partnerships is that they frequently disintegrate when one partner decides to quit the business. In that event, the partners shall divide the assets and income among themselves after satisfying all outstanding company responsibilities and debts.

A buy-sell or buyout agreement, which can be a component of your partnership agreement, should be made if you wish to stop this kind of ending for your company. A buy-sell/buyout agreement aids partners in deciding and making plans for what will happen in the event that one partner retires, passes away, is rendered incapacitated, or quits the partnership to pursue other interests. Such an arrangement would, for instance, permit the partners to purchase the interest of a departing partner so that operations might carry on as usual.
 
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If you have any questions about this article or similar matters please contact our office, Law Office of Yoel Molina, P.A., at fd@molawoffice.com or at 305-548-5020, option 1