By Mark Oldberg: July 8, 2015: Blog
When you decide to start a business one of the first things you must decide is what legal structure your business will utilize. There are many different choices for legal entity and even some special ones if you are a certain kind of business.
Part 2 in our walk through the different types of business structures takes us to partnerships. This article will cover the default general partnership model.
A general partnership is the multi-owner business equivalent of a sole proprietorship. If you and your buddy start taking jobs together, you have likely formed a partnership. Like a sole proprietorship the filing requirements are negligible, but the liability risk is high. A general partnership can even be formed sometimes without the parties realizing it. General partnerships should generally be avoided whenever possible because of the liability risk. A general partnership can be made up 2 or more people who associate to carry-on a business for profit.
With a general partnership there are no filing requirements. To use a specialized name you must file a fictitious name certificate with your locality. In Virginia, check with you local circuit court clerk's office for the appropriate forms. While not legally required, a general partnership should draw up a partnership agreement to govern the business. All important decisions made between the partners should be written down and kept in a binder. At the very least, write down how decisions will be made and how the profits will be distributed. Partners have a way of getting amnesia when business relationships sour.
A general partnership offers no legal protection from liability for the owners. While general partnerships are seen as entities separate from the owners, each partner is liable for the liabilities of the general partnership. The risk of liability in a general partnership is even greater than in a sole proprietorship because here you have to worry about the mistakes of your partners. If another partner injures someone or takes out a loan in the business's name, you could be left paying the bill from your personal savings account.
This lack of liability protection is why general partnerships aren't a great idea. It is pretty easy to set up a limited liability structure. Take the time and spend the small amount it takes to protect yourself.
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