Is an Expartner Considered a Protected Family Member

PARTNERSHIP

---

---

Photo by: Yuri Arcurs

In the words of the Uniform Partnership Human action, a partnership is "an association of two or more persons to comport on every bit Co-owners of a business organization for turn a profit." The essential characteristics of this business organisation form, and then, are the collaboration of ii or more owners, the conduct of concern for turn a profit (a nonprofit cannot be designated every bit a partnership), and the sharing of profits, losses, and assets by the articulation owners. A partnership is not a corporate or separate entity; rather information technology is viewed equally an extension of its owners for legal and taxation purposes, although a partnership may own belongings as a legal entity. While a partnership may be founded on a uncomplicated understanding, even a handshake between owners, a well-crafted and carefully worded partnership understanding is the best way to brainstorm the business. In the absence of such an agreement, the Uniform Partnership Act, a set of laws pertaining to partnerships that has been adopted past near states, govern the business organization.

There are two types of partnerships:

General PARTNERSHIPS In this standard course of partnership, all of the partners are equally responsible for the business's debts and liabilities. In addition, all partners are allowed to be involved in the management of the visitor. In fact, in the absence of a argument to the contrary in the partnership agreement, each partner has equal rights to control and manage the business. Therefore, unanimous consent of the partners is required for all major actions undertaken. Be brash, though, that any obligation made by one partner is legally binding on all partners, whether or not they have been informed.

LIMITED PARTNERSHIPS In a limited partnership, ane or more than partners are general partners, and 1 or more are limited partners. General partners are personally liable for the business'due south debts and judgments against the business organisation; they can also be directly involved in the direction. Express partners are substantially investors (silent partners, so to speak) who practise not participate in the company's management and who are also not liable beyond their investment in the business. Land laws decide how involved limited partners can exist in the solar day-to-day business of the firm without jeopardizing their limited liability. This business organization form is especially attractive to existent estate investors, who benefit from the tax incentives bachelor to limited partners, such equally existence able to write off depreciating values.

ADVANTAGES OF FORMING A PARTNERSHIP

Collaboration. As compared to a sole proprietorship, which is substantially the same concern form but with only one owner, a partnership offers the reward of allowing the owners to draw on the resources and expertise of the co-partners. Running a business organisation on your own, while simpler, can also be a constant struggle. But with partners to share the responsibilities and lighten the workload, members of a partnership often observe that they have more than time for the other activities in their lives.

Tax advantages. The profits of a partnership pass through to its owners, who study their share on their individual taxation returns. Therefore, the profits are simply taxed once (at the personal level of its owners) rather than twice, as is the case with corporations, which are taxed at the corporate level and and so again at the personal level when dividends are distributed to the shareholders. The benefits of unmarried tax can also be secured past forming an S corporation (although some ownership restrictions employ) or past forming a limited liability company (a new hybrid of corporations and partnerships that is still evolving).

Simple operating structure. A partnership, equally opposed to a corporation, is adequately simple to constitute and run. No forms need to exist filed or formal agreements drafted (although it is appropriate to write a partnership agreement in the event of future disagreements). The about that is ever required is perchance filing a partnership document with a state role in order to annals the business organisation'south name and securing a business license. As a effect, the annual filing fees for corporations, which tin can sometimes be very expensive, are avoided when forming a partnership.

Flexibility. Because the owners of a partnership are usually its managers, especially in the case of a pocket-sized business, the company is adequately piece of cake to manage, and decisions can be made speedily without a lot of hierarchy. This is not the example with corporations, which must have shareholders, directors, and officers, all of whom accept some caste of responsibleness for making major decisions.

Uniform laws. One of the drawbacks of owning a corporation or express liability visitor is that the laws governing those business entities vary from country to state and are changing all the fourth dimension. In contrast, the Uniform Partnership Act provides a consistent prepare of laws almost forming and running partnerships that make it easy for small concern owners to know the laws that touch on them. And because these laws have been adopted in all states only Louisiana, interstate business is much easier for partnerships than it is for other forms of businesses.

Conquering of majuscule. Partnerships generally take an easier fourth dimension acquiring capital than corporations considering partners, who apply for loans as individuals, can usually become loans on improve terms. This is because partners guarantee loans with their personal assets every bit well as those of the concern. As a consequence, loans for a partnership are discipline to country usury laws, which govern loans for individuals. Banks also perceive partners to be less of a take chances than corporations, which are only required to pledge the business'southward assets. In improver, by forming a limited partnership, the business concern can concenter investors (who volition not be actively involved in its management and who will enjoy limited liability) without having to form a corporation and sell stock.

DRAWBACKS OF FORMING A PARTNERSHIP

Conflict with partners. While collaborating with partners can be a great reward to a small business owner, having to actually run a business organization from day to day with 1 or more partners tin can be a nightmare. Commencement of all, you accept to give upward absolute command of the business concern and learn to compromise. And when big decisions have to be made, such equally whether and how to aggrandize the concern, partners often disagree on the best course and are left with a potentially explosive situation. The best mode to deal with such predicaments is to anticipate them past drawing up a partnership agreement that details how such disagreements will be dealt with.

Authority of partners. When i partner signs a contract, each of the other partners is legally bound to fulfill it. For example, if Anthony orders $10,000 of computer equipment, it is every bit if his partners, Susan and Jacob, had also placed the order. And if their business organization cannot afford to pay the nib, so the personal assets of Susan and Jacob are on the line also as those of Anthony. And this is truthful whether the other partners are enlightened of the contract or not. Even if a clause in the partnership agreement dictates that each partner must inform the other partners before any such deals are fabricated, all of the partners are nonetheless responsible if the other political party in the contract (the computer visitor) was not aware of such a stipulation in the partnership agreement. The but recourse the other partners accept is to sue.

The Uniform Partnership Human activity does specify some instances in which full consent of all partners is required:

• Selling the busigood will
• Decisions that would compromise the busiability to function normally
• Assign partnership belongings in trust for a creditor or to someone in exchange for the payment of the partnership'due south debts
• Admission of liability in a lawsuit
• Submission of a partnership claim or liability to arbitration

Unlimited liability . Every bit the previous example illustrated, the personal assets of the partnership's members are vulnerable considering there is no separation between the owners and the business organization. The primary reason many businesses choose to comprise or course limited liability companies is to protect the owners from the unlimited liability that is the main drawback of partnerships or sole proprietorships. If an employee or customer is injured and decides to sue, or if the business organization runs up excessive debts, then the partners are personally responsible and in danger of losing all that they own. Therefore, if considering a partnership, make up one's mind your assets that volition be put at risk. If you lot possess substantial personal avails that yous will not invest in the company and do not want to put in jeopardy, a corporation or limited liability company may exist a better choice. Just if you are investing most of what you lot own in the business organisation, so you don't stand up to lose whatsoever more than if yous incorporated. Then if your business organization is successful, and you observe at a later date that y'all at present possess extensive personal assets that you would like to protect, yous can consider changing the legal status of your business to secure express liability.

Vulnerability to death or departure. Unlike corporations, which be perpetually, regardless of buying, full general partnerships dissolve if i of the partners dies, retires, or withdraws. (In express partnerships, the death or withdrawal of the limited partner does not touch the stability of the concern.) Even though this is the police force governing partnerships, the partnership agreement tin can contain provisions to proceed the business organization. For instance, a provision tin be made assuasive a buy out of a partner's share if he or she wants to withdraw or if the partner dies.

Limitations on transfer of ownership . Dissimilar corporations, which be independently of their owners, the existence of partnerships is dependent upon the owners. Therefore, the Uniform Partnership Human activity stipulates that ownership may not be transferred without the consent of all the other partners. (Once more, a limited partner is an exception: his or her interest in the company may be sold at will.)

CHOOSING A PARTNER

Because of the need for compromise and the dynamics of shared authorization that come along with sharing a business organization, partnerships tin be very difficult to maintain and run efficiently. Therefore, the unmarried most of import conclusion a pocket-size business organisation possessor has to brand when forming a partnership is the pick of a partner. In fact, warns Edward A. Haman, in How to Write Your Own Partnership Agreement , "you should simply take on a partner if you absolutely need that person's coin or expertise." As an alternative, he advises, you could effort to "get the money equally a loan, or hire the person as a consultant to get the expertise." Only if you decide that forming a partnership is the best choice, consider the following when selecting a partner (anyone may become a partner, except minors and corporations):

Avails

• How much does your partner ain in personal assets? If you lot own much more than your partner, then creditors will come afterward you in the event of extensive debts.

PERSONALITY

• Do yous possess compatible personality types?
• How exercise you lot each deal with stress?
• How do you lot make decisions? Does your prospective partner tend to talk things through with others or make impulse decisions?

ROLES

• What function practise each of you intend to accept in the business? Are these roles uniform? Exercise you both hope to exist in charge of the accounts or dealing with vendors, for example? Or tin can y'all split upward the duties in a way that satisfies both of you?

SHARING RESPONSIBILITIES

• How much fourth dimension will your partner contribute to the enterprise?
• Can yous count on you partner to show upwards to work on fourth dimension? Or you will exist expected to cover for him?
• Is your prospective partner a hard worker, or will he or she routinely leave tasks for you to complete?

GOALS FOR THE BUSINESS

• How do each of you envision the future of the business? Exercise you promise to build up a solid business and then expand to other locations? Does your partner share that vision or does he or she promise only to be able to make a decent living out of one concern with fewer responsibilities than would exist required if running a concatenation of stores?

FORMING A PARTNERSHIP

RESERVING A Name The first step in creating a partnership is reserving a name, which must be washed with the secretary of land's office or its equivalent. Most states require that the words "Company" or "Associates" be included in the name to show that more than one partner is involved in the concern. In all states, though, the name of the partnership must not resemble the name of any other corporation, limited liability company, partnership, or sole proprietorship that is registered with the state

THE PARTNERSHIP AGREEMENT A partnership can be formed in essentially two ways: past verbal or written agreement. A partnership that is formed at will, or verbally, can also be dissolved at will. In the absenteeism of a formal understanding, state laws (the Uniform Partnership Human action, except in Louisiana) will govern the concern. These laws specify that without an agreement, all partners share equally in the profits and losses of the partnership and that partners are non entitled to compensation for services. If y'all would like to construction your partnership differently, you will demand to write a partnership agreement.

It may be advisable to consult a lawyer before drafting the agreement, simply you should at least inquiry the issue on your ain. A thorough partnership agreement should generally encompass the following areas:

• Name and accost
• Elapsing of partnership—You lot can specify a finite date on which all business will cease or you can include a full general clause that explains the partnership will exist until all partners concord to dissolve it or a partner dies.
• Purpose of business concern
• Partners' contributions—These may be in cash, property or services. Be sure to determine the value of all non-cash contributions.
• Partners' bounty—Determine how profits will be split up and how often. Too decide if whatsoever of the partners will receive a salary.
• Management Authority—Will partners exist able to make some decisions on their own? Which decisions volition require the unanimous consent of all partners?
• Work hours and holiday
• Kinds of outside business activities that will exist allowed for partners
• Partner withdrawal—Determine how the death, retirement, withdrawal, disability, or death of a partner volition exist handled through a buy-sell agreement. Also determine whether or non a partner who has simply withdrawn will be immune to operate a competing business concern.
• Disposition of the partnership's name if a partner leaves
• How to handle disputes—Make up one's mind whether or non mediation or arbitration will be provided for in the case of disputes that cannot be resolved amongst the partners. This is a way to avoid costly litigation.

RIGHTS AND RESPONSIBILITIES OF PARTNERS

The Uniform Partnership Human action defines the bones rights and responsibilities of partners. Some of these tin be inverse past the partnership agreement, except, equally a general rule, those laws that govern the partners' relationships with third parties. In the absence of a written agreement, then, the following rights and responsibilities employ:

RIGHTS

• All partners have an equal share in the profits of the partnership and are equally responsible for its losses.
• Any partner who makes a payment for the partnership beyond its capital, or makes a loan to the partnership, is entitled to receive interest on that coin.
• All partners have equal property rights for property held in the partnership'due south name. This means that the use of the property is every bit available to all partners for the purpose of the partnership's business.
• All partners have an equal interest in the partnership, or share of its profits and assets.
• All partners take an equal right in the management and conduct of the business.
• All partners accept a right to access the books and records of the partnership's accounts and activities at all times. (This does not employ to limited partners.)
• No partner may exist added without the consent of all other partners.

RESPONSIBILITIES

• Partners must report and plow over to the partnership any income they accept derived from use of the partnership'south property.
• Partners are not allowed to behave business that competes with the partnership.
• Each partner is responsible for contributing his or her total time and energy to the success of the partnership.
• Whatsoever holding that a partner acquires with the intention of it being the partnership'south belongings must be turned over to the partnership.
• Any disputes shall be decided by a majority vote.

FURTHER READING:

Clifford, Denis. The Partnership Book: How to Write a Partnership Agreement . fifth ed. Nolo Press, 1997.

Edwards, Paul. Teaming Up: The Minor-Concern Guide to Collaborating with Others to Boost Your Earnings and Expand Your Horizons . 1000.P. Putnam'southward Sons, 1997.

Fay, Jack R. "What Form of Buying is Best?" CPA Journal. August 1998.

Haman, Edward A. How to Write Your Ain Partnership Agreement . Sphinx Publishing, 1993.

Handmaker, Stuart A. Choosing a Legal Structure for Your Business . Prentice Hall, 1997.

Selecting the Legal Structure for Your Business Pocket-size Business organisation Assistants. n.a.

Steingold, Fred S. The Legal Guide for Starting and Running a Small Business . Second Edition. Nolo Press, 1995.

phamtowery69.blogspot.com

Source: https://www.referenceforbusiness.com/small/Op-Qu/Partnership.html

Share this post