Partnerships Think Before You Shake On It: A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. While a partnership can be simple to establish and very lucrative, there are a couple of things you should know before you decide to “shake on it.”
Partnerships have their advantages, but the few disadvantages will make any person think twice. In a partnership business partners are jointly and individually liable for the actions of the other partners. In other words, if one business partner enters into a binding contract on behalf of the business, without the other business partners consent, all of the business partners are bound and responsible for that contract.
Partnerships Think Before You Shake On It
Therefore, one business partner’s yes, means yes by all business partners, consensual or not. This also means that partners are personally liable for all business debts and obligations, including court judgments. As a consequence, if the business itself can’t pay a creditor, such as a supplier, lender, or landlord, the creditor can legally come after any individual partner’s house, car, or other possessions.
Another disadvantage to a partnership is profit-sharing. Business partners must share the profits. Sharing the profits, should also equate to sharing the workload. Hence, having a trustworthy, dependable, contributable, and honest partner is one of the most important aspects of the partnership. In addition, a partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each business partner includes his or her share of the partnership’s income or loss on his or her tax return. So before you “shake on it,” and call it a deal contact Boyer Law Firm.
Since, decisions are shared in a partnership and disagreements can occur protect yourself and let Boyer Law Firm assist with drafting your partnership agreement or deciding what business entity is best for you and your future plans.