If you are considering starting a business of any kind, it is essential that you consider all your options before you make any decisions. Choosing your business structure is the main key. The success or failure of your business depends on it. While sole proprietorships are ideal for the determined entrepreneur, for those who are willing to take less risks; Partnerships are the prefect choice. This is because, there is safety in numbers. In simple terms what this means is that your losses if any are spread out and personal liability is limited.
Additionally, a great benefit of entering into a partnership is that the work load is shared, plus you get a partner who can complement or supplement your skills.
About Partnerships
By legal definition, a partnership is a business with more than one person that is not incorporated or organized like a LLC. It is one of the simplest and least expensive ways to co-own a business.
There are basically two kinds of partnerships; general partnerships and limited partnerships. In a general partnership each partner has unlimited liability for the debts incurred by the business. The income and expenses of a business are also reported on a separate return for tax reasons. However each partner has to file his/her share of profits or loss on his/her own personal tax return. In a limited partnership the liability each partner has, is limited to the amount of money he/she has contributed to the partnership. With a few minor exclusions limited partnership taxes are filed the same as a general partnership.
Top Business Partnership Laws
Before you enter into a partnership with anyone, it is very essential that you know what you are doing. It is also imperative that you understand the business laws associated with partnerships, so that if you have any legal problems, you know how to get around them. It is also beneficial if you speak to a good business lawyer before entering into a partnership, so that he/she can advise you on all legal aspects pertaining to business partnership laws.
Business partnership taxes
While a partnership is not a separate tax entity, you do have to pay taxes on your profits. However, the partnership itself does not pay the taxes; you as an individual have to report the profits/losses on your personal tax returns. This is known as a 'pass through entity', because the income from your business 'passes through' to you from the business.
Additionally, all partners are required by law, to make quarterly estimated tax payments to the IRS every year. As a partnership you have to file an IRS Form 1065 each year.
This form is not for tax payments. Rather, it informs the IRS of each partners share in the partnership's profits /losses, so that the IRS is aware if you are correctly reporting your profits in your personal income tax returns.
Other business partnership laws
While you do not have to file any legal paper work to start up an ordinary partnership, it does require some local registrations. One has to apply for a business license or tax registration certificate. Most states also require his or her business to be registered, and a minimum tax payment. Partnerships also need an employer ID number from the IRS, as well as a seller's state license, and a zoning permit. Moreover partnerships also need to register a business name.
When forming a partnership, you are not legally required to have a written agreement, however, it is good to have one made up so that the details of ownership, each partner's rights and responsibilities, and their share of profits are all in writing, if any legal problems do arise and complicate matters.
Uniform Partnership Act
Most states in the US except Louisiana, have their own state laws governing partnerships, known as 'The Uniform Partnership Act' or 'The Revised Uniform Partnership Act'. Under these laws are established some basic legal rules that apply to owning and setting up a partnership, and will determine many aspects of your partnership, if one does not make a written partnership agreement. Do not think that these laws are appropriate for your partnership, because they are designed to keep the basic principles of a partnership in mind. This applies to all partnerships. It is better to have a written agreement, as it draws clear lines to what each partner's responsibilities and duties are.
