Founding Attorney
If you are at the beginning stages of forming a new business, you have probably realized that there is a laundry list of important decisions that need to be made. This includes what type of business to form. There are unique benefits and restrictions to any form of business whether it be a Limited Liability Corporation, General Partnership, Limited Partnership or something else. Investigate each business entity to make sure you pick the right one for you.
An Overview of a General Partnership
A general partnership, simply put, is two or more people who have agreed to form a business for profit. The structure and control aspects of a general partnership make it an attractive option for new businesses. Profits are shared equally among all partners, unless there is an agreement stating otherwise. Every partner holds an equal right to participate in managing and making decisions for the business. Additionally, partners have nearly complete discretion over decisions such as how agreements will be resolved and whether to allow anyone else to become a member of the general partnership.
One of the biggest concerns for those considering forming a general partnership is the fact that the partners have very little liability protection. Partners may share profits equally, but they also share equally in liability exposure. Every partner can be held equally responsible for the wrongful acts of another partner in the course of doing business. Partner assets are exposed should the business be sued and could be used to settle any debts of the partnership. Additionally, every partner enjoys “agency powers,” which means that any partner has the power to subject the whole business to a contract or other business deal.
Another possible downside of a general partnership is the fact that taxes do not pass through the partnership. Partners are responsible for taxable income from the partnership. The taxable income will go straight to their own personal taxes.
To form a partnership, there must be proof that an agreement among the partners has been made. This agreement is usually written up as a partnership agreement. A partnership agreement will include things like:
- The name and address of the partnership
- Names of all partners
- Purpose of the partnership
- Effective date of partnership formation
- Voting procedure and requirements to make business decisions
- How profits will be shared
- Procedure for dissolving the partnership
- Procedure for a partner withdrawing from the partnership
- Required partner contributions
- Deadline for partner contributions
The partnership agreement should memorialize some, if not all, of the major decisions required of forming a general partnership. The agreement will act as a guideline for how the partnership should be run.
Austin Business Law Attorney
When you are establishing a business, having dedicated legal counsel by your side will help set your business up for success. The Kumar Law Firm is here to help you make those major decisions such as which type of business entity should you form. We can also draft partnership agreements that reflect your business wishes and requirements. The Kumar Law Firm works to help our clients succeed in their entrepreneurial endeavors. Contact us today.