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Business Partnerships
Advantages and Disadvantages



Business Partnerships - In creating the type of business formation known as a Partnership, two or more people share ownership of a single business. The shared ownership concept that characterizes the Business Partnerships afford distinct advantages and disadvantages. Like Sole Proprieships, the laws do not distinguish between the business and its owners. Whereas the LLC gives you both options. The Business Partners should have a legal agreement that sets forth how decisions will be made, profits will be shared, disputes will be resolved, how future business partners will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. Its difficult to think about a "break-up" when the business is just getting started, but many business partnerships split up at crisis times and unless there is a defined process, there will be problems. They also must decide up front how much time and capital each will contribute.



Business Partnership Advantages

  • Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.
  • With more than one owner, the ability to raise funds - Debt vs Equity may be increased.
  • The profits from the business flow directly through to the partners' personal tax returns.
  • Prospective employees may be attracted to the business if given the incentive to become a partner.
  • The business usually will benefit from partners who have complementary skills.


Business Partnership Disadvantages

  • Business Partners are jointly and individually liable for the actions of the other partners.
  • Profits must be shared with others.
  • Since decisions are shared, disagreements can occur.
  • Some employee benefits are not deductible from business income on tax returns.
  • The partnership may have a limited life; it may end upon the withdrawal or death of a partner.





Questions that should be decided before entering into a Partnership Agreement:

  • Are Partners allowed to participate in activites in competition with the Partnership?


  • For what time period is a Partner prohibited from competing after withdrawal?


  • Should Partners be compensated for services in addition to share of profits?


  • What is the voting percentage required to amend any part of this Agreement?


  • What percent of vote is required to dissolve the Partnership?


  • How will Partnership assets be distributed on Dissolution or Dissociation?



Business Partnerships Tax Filing

Business Partnerships Termination
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