Updated: Apr 12, 2022
In this blog, we discuss the following:
A business structure is similar in the sense that it reminds us of choosing which university to attend as we were preparing to leave the last year of high school. You either know which university to attend, you’re unsure where to start, or considering a few options based on your needs and wants.
Choosing where to start your next new journey is the same as finding the right business structure, as it is one of the first steps to starting a business. It can sound daunting but, it doesn’t have to be a tough decision once you understand the differences and what you’re looking for. Luckily, unlike universities, there are just a few to pick from. There are four main business entity choices: sole proprietorship, partnership, limited liability company (LLC), and corporation. In this blog series, we go over the advantages and disadvantages of each, starting off with a partnership.
Three Types of Partnerships
General partnership: this type of partnership is where all partners share equal control, as well as liability.
Limited partnership: in this type, there is one partner that has unlimited liability, while others have limited liability. Earnings from the partnership are passed through to everyone’s personal tax returns and the general partner also must pay self-employment taxes.
Limited liability partnerships: all partners here should have limited liability and are covered from being responsible for the company’s debts and the mistakes of other partners.
Advantages of a Partnership
A partnership business is one of the most common business types.
A business partnership is suited for those with more than one owner.
Good for professional groups, such as practicing attorneys or a group of business owners that want to experiment with their business before forming a more established company.
Disadvantages of a Partnership
In addition to sharing profits and assets, it also includes the debts and faults of others.
Since decision-making is shared, disagreements may occur between partners with management styles.
Though a team of partners is more likely to be able to contribute more capital than a sole proprietor, a partnership will often still find it more difficult to raise funds than an LLC.
How to Form a Partnership?
Another plus to considering a partnership is that there are very minimum legal procedures required. Here are steps to forming a partnership:
Choose your partners
Determined your type of partnership
Choose a business name
Register the partnership
Determine tax obligations
File for an employer identification number (EIN)
Establish a partnership agreement
Obtain a business license (and other permits)
Open a business bank account
Choose an accounting option
For most small businesses, every penny counts. So, depending on who you go talk to, the recommendations can vary. A tax consultant might advise you based on your tax situation. A bookkeeper will have a different viewpoint for ease of data entry. Talk to a lawyer and you’ll get suggestions from the asset and liability protection side of things. You can talk to a financing expert and they can give you the best opportunities for obtaining credit and capital. Talk to investors and they’ll have a specific type of entity they will only invest in. A branding expert can give the best entity just based on the image and marketability of your company. No two businesses are the same. So make sure to talk to a professional to make the best decision for you and your business. Determine if a partnership is right for you. You can contact us today for a consultation.