There are many reasons to go into a partnership. Each business partner
brings his or her unique strengths to the table, and this can be invaluable.
If you are looking for someone other than a family member or spouse, you
may be looking for a trusted, nonbiased person who can help you build
a successful business.
Perhaps you have a strong background in marketing or PR, and you’re
soon-to-be partner has a strong background in accounting; it’s a
match made in heaven.
Obviously, one of the biggest perks of partnership is having someone to
share the financial burden with. Also, more work can be done with partners
than with one business owner, as well as more cash flow – a plus,
especially at the beginning when a new business cannot yet afford to hire
What types of partnerships are there?
You have found your partner – that is half the battle. Now, you need
to decide which type of partnership is right for your business: general,
limited, or joint venture.
The decision will come down to the strengths and resources of each partner,
the type of business, and your long-term goals for the business.
1. General partnership. This is a 50/50 partnership where everything, from the responsibilities
down to the profits are divided equally between the partners.
2. Joint venture. A joint venture is almost identical to the general partnership, however,
it is for a single project as opposed to a business. With a joint venture,
the nature of the partnership can change as time passes.
If the venture is successful, it can be made into a general partnership
if the partners decide that they want to work on new ventures together.
3. Limited partnership. Limited partnerships are different than general partnerships and joint
ventures because the partners do not share equally in the responsibilities.
For instance, one partner may contribute capital, but not be involved
in the daily business activities.
The partner who only invests money may have a limited liability, and is
only risking the money that he or she invested in the business. In the
meantime, the partners who are involved in the daily operations of the
business are liable for the profits and losses of the business.
Formally Establishing a Partnership
While all an entrepreneur has to do to establish a general partnership
or become involved in a joint venture is make a verbal agreement with
their partner, it’s not the best way to enter into a partnership.
The savvy partners formalize the terms of their agreement in writing to
protect themselves legally.
If you are looking to establish a limited liability partnership, it is
important that you document how the partnership would be legally dissolved
among other things. However, to do this right you will need to talk to
an experienced business law attorney.
Whatever type of partnership you are contemplating, it’s important
to have legal guidance. As you are probable already aware, it’s
not uncommon for problems to arise with partnerships at a later date.
Partners will start out on friendly terms, but things can easily get complicated
when it comes to each person’s contributions, money, and how the
business is being run.
Consult with a Chicago business law attorney from Rifkind Patrick LLC regarding the three
types of partnership. We can help save you as much trouble as possible
in the future.