Starting a business is an exciting and stressful experience. If you have elected to form a partnership, whether it is a general partnership, a limited partnership or a joint venture, one of your first steps will be crafting a strong partnership agreement. Partnerships form for a number of reasons, the partners may need each other financially or each may bring a particular knowledge required for the business to succeed. The small business partnership agreement will allow your business to run smoothly and will provide guidance to questions that often arise throughout a venture.
A qualified business attorney can provide you further guidance on what type of partnership you should form, but here is a brief overview of the available partnership options.
A general partnership divides the profits, obligations and management responsibilities amongst the partners. The ownership interests or percentages are typically split evenly but can be divided at any chosen percentage and long as the percentage is put in writing. Businesses operating under a general partnership will be responsible for filing taxes; however, the business will not pay taxes on the income. The partners will be responsible for including the businesses profits and losses on their personal income taxes and must file a K1.
A limited partnership is true to its name, it gives the partners the ability to have a limited interest in the business that will correlate to the amount the particular partner invested in the business. Along with the limited interest the partners will have limited decision making abilities and limited liability. Similar to general partnerships, a limited partnership business will file taxes and pass the burden to pay said taxes on the profits to the limited partners.
A joint venture partnership is essential the same as a general partnership, however, it can be entered into a selected period of time or can be entered into on a per project basis.
Crafting the Agreement
There is a saying that it’s the little details that are vital and that is most definitely the truth in a partnership agreement. A strong partnership agreement must lay out how the partnership will run and what to do when a variety of situations arise. If you are wondering how to write a partnership agreement, here are some components that all partnerships should contain.
- Business management, partner’s responsibilities, and making business decisions;
- Ownership interests;
- Percentages of profits and losses;
- Who can bind the partnership;
- Partner departures due to death or unforeseen circumstances;
- Adding partners to the business; and
- Resolving disputes that may arise between the partners and the logistics regarding the jurisdiction where disputes will be resolved.
The small business partnership agreement will act as a tool for the partners to use when running the day to day operations of their business and often proves to be a valuable asset in successful businesses. Goldbach Law Group has extensive experience preparing a wide array of partnership agreements and can guide your new partnership through all the ins and outs of an iron clad partnership agreement that will not only protect both partners but will abide by California laws and regulations.