What are the advantages and disadvantages of a partnership?
Selecting a business structure is one of the most important decisions you can make for your new business. Your business structure will impact your ability to grow and raise capital, designation of business duties, taxes, and much more. For business owners with a partner, the most obvious choice for your new business may be a partnership. However, partnerships come with certain drawbacks and new business owners should carefully weigh the pros and cons of this type of business structure before selecting it.
General Partnerships in Texas
A general partnership is created when two or more people come together to form a for-profit business. Partners will enter into a partnership agreement which allows them to share assets and profits, as well as liabilities and responsibilities for running the business. Partners will need to select a business name and file the business name in the County Clerk’s Office in the county where the business is located.
Benefits of a Partnership
Partnerships come with several advantages for Texas business owners. For starters, this type of business structure is simple and flexible. A general partnership can be formed at little cost and requires less paperwork than corporations and LLCs. Partnerships allow partners to easily combine their resources and share in the financial commitment to the business. Finally, partnerships allow for ease of tax filings. Partners will include the business’ income or losses on their individual income returns.
Drawbacks to Partnerships
The greatest drawback to a general partnership is liability. Partners will be personally liable for the businesses’ liabilities and debts. Each partner is also liable for debts incurred by other partners. The potential for significant personal liability will often deter business owners from selecting this type of business entity. In addition to concerns for personal liability, partnerships may struggle to raise money or attract investors due to liability issues.
If you are considering starting a business in Texas, contact the Austin business formation lawyers at The Kumar Law Firm PLLC. Our firm will closely review your business plan to advise you on the best options for formation of your new business.