A partnership is a business that is owned by two or more people. Like sole proprietorships, many partnerships are small companies that have been formed when individuals pool their money and resources to form a bigger company.
Partnerships have characteristics comparable to those of sole proprietorships but may be structured differently in terms of tax filings and legal descriptions.
In a partnership with an unlimited liability structure, the legal assets of the business are not separate from each of the partner’s personal assets. This means that each partner is liable for the debts of the partnership.
A partnership structured with a limited liability framework means that the life of the business is limited and will exist only as long as the contract with the partners is valid.
Business partnerships are based on partnership agreements. It’s crucial that the partners agree upon the terms of their partnership in writing concerning all aspects of the partnership. The agreement should outline how much money each partner is to invest, how much time each partner is expected to dedicate to the business, and what the salaries of each partner will be, and how business income is to be divided or invested.
When Partnership Agreements are Not Created
If there are disputes among partners, and a partnership agreement has not been drawn up and signed, the courts may be forced to settle issues among the partners. To avoid misunderstandings and expensive legal fees, partners should take the time at the onset to draft a partnership agreement and review it from time to time to determine if changes are required as the business grows or contracts.
Elaine Allan, BA, MBA
Technology & Business Blogger
Vancouver, BC, Canada