A business partnership is one of the oldest forms of business. Essentially, it involves two or more people working together.
One of the biggest benefits of a partnership is that it’s simple. You don’t necessarily need to pay income tax. Rather, profits made in the business are the responsibility of each owner and taxed within individual returns.
Managing a partnership is fairly easy, too. Each person has an equal say and the authority to enter into transactions on the business’s behalf.
Different Types of Business Partnership
In Florida, three types of partnerships are recognized. These are joint ventures, limited partnerships, and general partnerships. For the latter, partners equally divide their responsibilities and profits. Limited partnerships are made up of partners who are active in managing the business and those who are investors with a limited management role. Joint ventures are similar to general partnerships, but the partnership exists for a certain period of time.
Always Ensure You Have a Partnership Agreement
Regardless of the type of partnership you want to form, it’s a good idea to have a solid agreement in place.
The partnership agreement is a legally binding document that lays out each partner’s liabilities and duties. It also details the percentage of profits each partner is entitled to and any other necessary elements of the partnership.
So, What About the Debt?
In terms of a general partnership, the agreement exists on its own as a distinct and separate entity from the owners. The partnership can sue and be sued in the business’s name. It can also own property.
What’s more, each partner within the partnership can manage the business. Without a formal business partnership agreement, the partners share equal losses and profits, no matter what their contribution may be.
When it comes to debt, things are a little different. Partners are each liable for the actions of the business. So, if the partnership is not able to pay creditors, for example, or the business is not a success, each partner is responsible to pay debts. As such, creditors can seize the partner’s personal assets, including cars and bank accounts, to cover the partnership’s debt.
If there is no formal partnership agreement, the general partnership can end when one partner gives notice of their desire to leave the business. But a business partnership agreement can properly outline the procedure for dissolving the partnership. An agreement is also important for detailing issues such as how profits and losses are divided, how big decisions should be made, how much control each partner has in the business, and how a partner can dissociate from the agreement.
But Different Partnerships Have Different Requirements
While general partnerships require each partner to be personally responsible for the debt, it’s different for other types of business partnerships.
When it comes to limited partnerships, owners include both limited and general partners. The general partners are personally liable for debts, whereas limited partners aren’t.
A Business Partnership Agreement Is a Necessity
If you’re planning to enter a partnership, a written agreement is important. Partnership agreements can concisely outline the relationship between the partners, each person’s financial stakes, how the venture will be managed, and the fact that each partner is personally responsible for the debts.
Under Florida law, all partners in a business venture have equal management and financial interests. So, if you wish to incorporate any other terms, you will need a formal agreement.
While two or more people can certainly agree to form a business partnership without the need to have anything in writing with the state, a partnership agreement ensures that everyone is on the same page when it comes to responsibilities and rights.
Make sure you have a legally binding partnership agreement. Book a consultation today with Principal Law Firm.
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