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Partnerships
A partnership often involves a group of two or more sole proprietors. Forming a partnership does not involve filing any paperwork with the government in its formation. However, it is usually advisable to create a written agreement between the partners (also called a Partnership Agreement). Believe it or not, the relationship among partners can be subject to problems. So, it is best to plan for these contingencies upon formation to alleviate any guesswork later. Additionally, a Partnership Agreement allows each partner to protect him or herself by defining the terms of the partnership in writing. Many times this type of agreement will describe the distribution of responsibilities and profits, as well as a contingency plan in the event a partner dies or decides to leave.

Partnerships are either general or limited. Absent an agreement stating otherwise, a general partnership divides the profits and control of the business equally among the partners. The partners are jointly and severally liable for all debts and liabilities of the business. This also means that each partner can be held fully liable for the wrongdoings of their partner.

Creating a limited partnership limits each partner’s potential for liability. In a limited liability partnership, each partner is only responsible for the amount of capital that they have invested in the business. A limited partner invests capital and shares in the profits of the business, but does not participate in its running. A limited partnership must still have one or more general partners who are fully liable. While limiting the liability of certain partners, these partners are encouraged to invest in the business. A limited liability partnership (also referred to as an LLP) allows limited partners to take an active role in the partnership without being subjected to liability for other partners' acts.

Advantages of Partnerships:
  • [Partnerships are relatively easy to form and operate.]
  • [Partnerships permit ownership by more than one person.]
  • [Partnership losses can be used to reduce a partner's taxable income.]
  • [Partnerships are not subject to double taxation.]

Disadvantages of Partnership:
  • [Partnerships can generate personal liability for general partners.]
  • [Partnerships can end if one of the partners leaves or dies.]
  • [Partnerships interests can be difficult to buy or sell and require agreements to be rewritten to reflect changes.]
  • [General partnership interests may not be sold or transferred without consent of all partners.]

The type of business structure that you decide to use greatly affects the amount of liability that you may face. Using an attorney is a great way to help you fully understand various partnership types and help you form and implement one.


Contact us at 877-479-7970, or e-mail us at info@law-thomas.com, to arrange for a confidential complimentary family law consultation.
FAQ's
Q: What is the difference between a C Corporation and an S Corporation?
A: All corporations begin their lives as a C corporation. The owners can elect to become an S corporation by filing a form 2553. This new status allows the owners to be taxed like a partnership or a sole proprietorship. The income of the corporation "passes through" to the owners without the corporation being taxed. The S corporation does come with additional limitations, though, namely a shareholder limit of 100 and U.S. residency requirement for shareholders.

Q: What is "piercing the corporate veil"?
A: In some cases, courts have allowed plaintiffs to pursue the owners' assets of the corporation to satisfy a judgment against the corporation. This defeats the liability protection that owners typically have with the corporation. It is only in the most severe cases that courts allow plaintiffs to pierce the corporate veil. Some instances may include: fraud, intermingling of an owner's and corporate funds, improper formation, and practices to the point where the corporation can no longer be viewed as a separate entity. This is also known as "alter ego liability."

Q: What is a "registered agent"?
A: A registered agent provides a local address for the receipt of service of papers and for contact by the Secretary of State and other agencies. A corporation and LLC need registered agents because even though they are separate legal entities, they cannot receive paperwork, so they need someone to receive information on their behalf.

Q: Do I need permission to conduct business in another state when I am already incorporated in my own state?
A: Yes. A foreign corporation wishing to do business in another state must qualify to do so. Information on the process may be obtained from the Secretary of State in the state that the company is going into.

Q: Is there a benefit to incorporating in Nevada or Delaware?
A: Generally, no. There used to be significant benefit to incorporating in Delaware or Nevada, but with the changes in state laws those reasons no longer exist.

Q: What is a non-profit corporation?
A: A non-profit corporation is a corporation that is carried out for a charitable, educational, religious, literary or scientific purpose. A non-profit corporation does not pay either state or federal taxes because the government deems the corporation's actions to be for the betterment of society.

Resources
The Small Business Administration (SBA)
The Tools section of the Small Business Administration's Web site provides users with small business information.

Findlaw Business Structure
This web site provides information on the different legal structures for a business.

Megalaw.com
This site has links to state corporate statutes. It also provides an excellent list of links to corporate law and business organizational websites.

IRS Department of Treasury
This site has links to tax forms and formation for all entities and business types.