5 Reasons Why You Should Form a Partnership
If you're just getting your small business off the ground, you may be trying to figure out how you want to organize. Go big as a corporation or LLC? Go charitable as a non-profit? Or go it alone as a sole proprietorship?
One of the most popular options for small businesses, due to its simplicity and lack of formal filing requirements, is the partnership. Here are five reasons a partnership might work for your small business:
- Easy Setup. Partnerships are formed by a private agreement between the partners, and don't need to register their existence with the state like corporations or limited liability companies. Partnerships don't require a written agreement, but it's a good idea to have one, nonetheless.
- Easy End. Just as easy as it is to form a partnership, it's simple to change or dissolve a partnership; all it takes is one partner giving notice of his express will to leave the partnership. (This may also be a detracting factor, depending on how you look at it.)
- Easy Taxes. While partners are taxed on profits and losses from the business, the partnership itself is not taxed; therefore partners must only report profits on their personal tax returns, rather than creating a business tax return.
- Easy Options. Limited partnerships, general partnerships, and even joint ventures, are some of your options when creating a partnership; each have their advantages and can provide your business with the flexibility it needs.
- Hard Choices. In a partnership, partners have a duty of loyalty to each other and must not enrich themselves at the expense of the partnership, forcing each partner to do what's in the partnership's best interests.
There are some drawbacks to partnerships, like personal liability for the partners and a difficulty adding investors. (Although forming a limited liability partnership could help.) To know if a partnership is right for your business, talk to an experienced business organizations attorney near you.
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