How To Register A Business With Secretary Of State

PARTNERSHIP

Partnership 73

Photo past: Yuri Arcurs

In the words of the Uniform Partnership Act, a partnership is "an clan of two or more persons to carry on as Co-owners of a business for profit." The essential characteristics of this business form, and so, are the collaboration of ii or more than owners, the conduct of business for turn a profit (a nonprofit cannot be designated as a partnership), and the sharing of profits, losses, and assets by the joint owners. A partnership is not a corporate or split up entity; rather information technology is viewed every bit an extension of its owners for legal and revenue enhancement purposes, although a partnership may ain property as a legal entity. While a partnership may exist founded on a simple agreement, fifty-fifty a handshake between owners, a well-crafted and carefully worded partnership agreement is the best way to brainstorm the concern. In the absence of such an understanding, the Uniform Partnership Deed, a set of laws pertaining to partnerships that has been adopted by most states, govern the business organization.

There are ii types of partnerships:

Full general PARTNERSHIPS In this standard form of partnership, all of the partners are equally responsible for the business'south debts and liabilities. In improver, all partners are allowed to be involved in the direction of the company. In fact, in the absence of a argument to the contrary in the partnership agreement, each partner has equal rights to command and manage the business. Therefore, unanimous consent of the partners is required for all major actions undertaken. Be advised, though, that any obligation made by one partner is legally bounden on all partners, whether or not they take been informed.

Express PARTNERSHIPS In a limited partnership, one or more partners are general partners, and one or more are limited partners. General partners are personally liable for the business organization's debts and judgments against the business; they can also exist direct involved in the management. Limited partners are essentially investors (silent partners, so to speak) who do not participate in the company's management and who are also not liable across their investment in the business organisation. State laws determine how involved limited partners can be in the day-to-twenty-four hours business of the firm without jeopardizing their limited liability. This business form is especially attractive to real estate investors, who benefit from the taxation incentives available to limited partners, such as existence able to write off depreciating values.

ADVANTAGES OF FORMING A PARTNERSHIP

Collaboration. As compared to a sole proprietorship, which is essentially the aforementioned business form but with only one possessor, a partnership offers the advantage of assuasive the owners to draw on the resources and expertise of the co-partners. Running a business on your own, while simpler, tin can also be a constant struggle. But with partners to share the responsibilities and lighten the workload, members of a partnership oft notice that they take more time for the other activities in their lives.

Tax advantages. The profits of a partnership pass through to its owners, who report their share on their private tax returns. Therefore, the profits are only taxed one time (at the personal level of its owners) rather than twice, as is the case with corporations, which are taxed at the corporate level and so again at the personal level when dividends are distributed to the shareholders. The benefits of unmarried taxation can too be secured by forming an S corporation (although some buying restrictions apply) or by forming a express liability company (a new hybrid of corporations and partnerships that is still evolving).

Unproblematic operating structure. A partnership, every bit opposed to a corporation, is fairly unproblematic to establish and run. No forms need to be filed or formal agreements drafted (although information technology is advisable to write a partnership agreement in the event of time to come disagreements). The nigh that is ever required is perhaps filing a partnership certificate with a state part in social club to register the business's proper name and securing a business license. As a result, the annual filing fees for corporations, which can sometimes be very expensive, are avoided when forming a partnership.

Flexibility. Considering the owners of a partnership are ordinarily its managers, peculiarly in the case of a pocket-size business, the visitor is fairly like shooting fish in a barrel to manage, and decisions can be fabricated rapidly without a lot of bureaucracy. This is non the case with corporations, which must take shareholders, directors, and officers, all of whom have some caste of responsibility for making major decisions.

Uniform laws. One of the drawbacks of owning a corporation or limited liability company is that the laws governing those business entities vary from state to state and are irresolute all the time. In contrast, the Uniform Partnership Act provides a consistent set of laws virtually forming and running partnerships that arrive like shooting fish in a barrel for small business owners to know the laws that bear upon them. And because these laws have been adopted in all states just Louisiana, interstate business is much easier for partnerships than information technology is for other forms of businesses.

Acquisition of capital. Partnerships by and large accept an easier time acquiring upper-case letter than corporations because partners, who utilise for loans as individuals, tin usually become loans on better terms. This is because partners guarantee loans with their personal assets likewise as those of the concern. Equally a result, loans for a partnership are subject area to state usury laws, which govern loans for individuals. Banks besides perceive partners to exist less of a risk than corporations, which are only required to pledge the business organisation's avails. In addition, by forming a express partnership, the business tin can attract investors (who will not exist actively involved in its management and who volition enjoy express liability) without having to grade a corporation and sell stock.

DRAWBACKS OF FORMING A PARTNERSHIP

Conflict with partners. While collaborating with partners can exist a swell reward to a pocket-sized business owner, having to actually run a concern from day to solar day with i or more partners tin can be a nightmare. First of all, yous have to give upward accented command of the concern and learn to compromise. And when large decisions have to exist made, such as whether and how to expand the business, partners often disagree on the best course and are left with a potentially explosive situation. The best style to deal with such predicaments is to anticipate them past drawing up a partnership agreement that details how such disagreements volition be dealt with.

Authority of partners. When one partner signs a contract, each of the other partners is legally bound to fulfill it. For example, if Anthony orders $ten,000 of computer equipment, information technology is as if his partners, Susan and Jacob, had besides placed the lodge. And if their business organisation cannot afford to pay the nib, then the personal assets of Susan and Jacob are on the line every bit well as those of Anthony. And this is true whether the other partners are aware of the contract or not. Even if a clause in the partnership understanding dictates that each partner must inform the other partners before any such deals are made, all of the partners are still responsible if the other political party in the contract (the computer company) was non aware of such a stipulation in the partnership understanding. The simply recourse the other partners take is to sue.

The Uniform Partnership Act does specify some instances in which full consent of all partners is required:

Selling the busigood will
Decisions that would compromise the busiability to function normally
Assign partnership property in trust for a creditor or to someone in substitution for the payment of the partnership's debts
Admission of liability in a lawsuit
Submission of a partnership claim or liability to mediation

Unlimited liability . Equally the previous example illustrated, the personal assets of the partnership'due south members are vulnerable considering there is no separation between the owners and the business. The principal reason many businesses choose to incorporate or course limited liability companies is to protect the owners from the unlimited liability that is the main drawback of partnerships or sole proprietorships. If an employee or client is injured and decides to sue, or if the concern runs upwards excessive debts, then the partners are personally responsible and in danger of losing all that they own. Therefore, if because a partnership, determine your avails that volition be put at risk. If you possess substantial personal assets that you volition non invest in the visitor and practise not want to put in jeopardy, a corporation or limited liability company may be a better choice. But if you are investing most of what you own in the business, and then you lot don't stand to lose whatever more than if you incorporated. And so if your business is successful, and you find at a after date that you now possess all-encompassing personal assets that you would like to protect, you tin can consider irresolute the legal status of your business to secure limited liability.

Vulnerability to death or departure. Unlike corporations, which exist perpetually, regardless of buying, full general partnerships deliquesce if one of the partners dies, retires, or withdraws. (In express partnerships, the death or withdrawal of the limited partner does not affect the stability of the business organisation.) Even though this is the police force governing partnerships, the partnership agreement can incorporate provisions to go along the business. For example, a provision can be made assuasive a buy out of a partner'south share if he or she wants to withdraw or if the partner dies.

Limitations on transfer of ownership . Different corporations, which be independently of their owners, the beingness of partnerships is dependent upon the owners. Therefore, the Uniform Partnership Act stipulates that ownership may not exist transferred without the consent of all the other partners. (Again, a express partner is an exception: his or her interest in the company may exist sold at will.)

CHOOSING A PARTNER

Because of the need for compromise and the dynamics of shared authority that come along with sharing a business, partnerships can be very difficult to maintain and run efficiently. Therefore, the single most important determination a small business owner has to make when forming a partnership is the pick of a partner. In fact, warns Edward A. Haman, in How to Write Your Own Partnership Agreement , "you lot should only take on a partner if y'all absolutely need that person'southward money or expertise." As an alternative, he advises, you could try to "go the coin as a loan, or rent the person as a consultant to get the expertise." But if you decide that forming a partnership is the all-time choice, consider the post-obit when selecting a partner (anyone may get a partner, except minors and corporations):

Avails

How much does your partner own in personal avails? If y'all own much more than your partner, then creditors will come later on you in the event of extensive debts.

PERSONALITY

Do yous possess compatible personality types?
How practise you each deal with stress?
How do you make decisions? Does your prospective partner tend to talk things through with others or make impulse decisions?

ROLES

What role exercise each of you intend to take in the business? Are these roles compatible? Do you both hope to be in charge of the accounts or dealing with vendors, for case? Or can you split up the duties in a fashion that satisfies both of y'all?

SHARING RESPONSIBILITIES

How much time will your partner contribute to the enterprise?
Can yous count on you partner to show up to work on time? Or you volition be expected to cover for him?
Is your prospective partner a hard worker, or will he or she routinely leave tasks for y'all to complete?

GOALS FOR THE Business organisation

How do each of y'all envision the future of the business organization? Do you promise to build upward a solid business and and so expand to other locations? Does your partner share that vision or does he or she promise only to be able to make a decent living out of one business with fewer responsibilities than would be required if running a chain of stores?

FORMING A PARTNERSHIP

RESERVING A NAME The first step in creating a partnership is reserving a proper name, which must be done with the secretary of country's function or its equivalent. Most states require that the words "Visitor" or "Associates" be included in the name to testify that more than than one partner is involved in the business organisation. In all states, though, the proper name of the partnership must not resemble the name of any other corporation, limited liability visitor, partnership, or sole proprietorship that is registered with the land

THE PARTNERSHIP Understanding A partnership tin can exist formed in essentially two ways: by verbal or written agreement. A partnership that is formed at will, or verbally, tin also be dissolved at volition. In the absence of a formal understanding, state laws (the Uniform Partnership Act, except in Louisiana) volition govern the business organization. These laws specify that without an agreement, all partners share equally in the profits and losses of the partnership and that partners are not entitled to compensation for services. If yous would like to structure your partnership differently, you volition need to write a partnership agreement.

It may be advisable to consult a lawyer earlier drafting the agreement, merely you should at least research the effect on your own. A thorough partnership agreement should generally cover the following areas:

Name and address
Elapsing of partnership—You can specify a finite date on which all business will stop or you can include a general clause that explains the partnership volition exist until all partners agree to dissolve it or a partner dies.
Purpose of concern
Partners' contributions—These may be in cash, property or services. Exist sure to determine the value of all non-greenbacks contributions.
Partners' compensation—Determine how profits volition be split up and how often. Also make up one's mind if any of the partners will receive a salary.
Management Authority—Will partners exist able to make some decisions on their own? Which decisions volition require the unanimous consent of all partners?
Piece of work hours and holiday
Kinds of outside business activities that will be allowed for partners
Partner withdrawal—Determine how the expiry, retirement, withdrawal, disability, or expiry of a partner will be handled through a buy-sell understanding. As well determine whether or non a partner who has but withdrawn will be allowed to operate a competing business.
Disposition of the partnership's name if a partner leaves
How to handle disputes—Decide whether or not mediation or arbitration will be provided for in the case of disputes that cannot be resolved among the partners. This is a way to avoid costly litigation.

RIGHTS AND RESPONSIBILITIES OF PARTNERS

The Compatible Partnership Human action defines the basic rights and responsibilities of partners. Some of these can be changed past the partnership agreement, except, as a general rule, those laws that govern the partners' relationships with third parties. In the absence of a written agreement, and then, the post-obit rights and responsibilities apply:

RIGHTS

All partners accept an equal share in the profits of the partnership and are equally responsible for its losses.
Any partner who makes a payment for the partnership beyond its capital, or makes a loan to the partnership, is entitled to receive interest on that money.
All partners take equal property rights for belongings held in the partnership's name. This means that the use of the property is as available to all partners for the purpose of the partnership's business.
All partners accept an equal interest in the partnership, or share of its profits and assets.
All partners have an equal right in the direction and carry of the business.
All partners take a right to access the books and records of the partnership's accounts and activities at all times. (This does not apply to limited partners.)
No partner may exist added without the consent of all other partners.

RESPONSIBILITIES

Partners must report and turn over to the partnership any income they have derived from utilise of the partnership'south property.
Partners are non immune to conduct business that competes with the partnership.
Each partner is responsible for contributing his or her full time and energy to the success of the partnership.
Any property that a partner acquires with the intention of it being the partnership'south holding must be turned over to the partnership.
Any disputes shall be decided by a majority vote.