There are many challenges to starting a business alone, which is why many people seek partners to ease the workload and share profits. A business partnership can give people more connections, possibilities to reach a wider customer base and practices that only come from experience in the field.
There are several different types of business partnerships. Let’s look at two common types that you may want to discuss with potential partners.
General partnership
When two or more people decide to manage a business with equal rights and responsibilities, then they may create a general partnership. Each partner would be liable for any business debts and legal obligations.
While that may put off some people, a general business partnership comes with tax advantages. For example, partners may put gains on their individual tax returns at a lower rate since their profits are not taxed to the business.
Limited partnership
Some people don’t want the full responsibility that comes with a general partnership. Instead, people looking to manage a business together can seek a limited partnership. A limited partnership restricts each partner’s personal liability based on how much they invest in the business.
However, one business partner must take a general partnership role and may be expected to take full liability for the business’s debts and obligations. The general and limited partners both benefit from the business’s profits, but the general partner may be the only one who makes management decisions.
It’s important to know what having partner will mean for a business and what type of partnership will work best for you. When considering starting a business partnership, it helps to reach out for help to understand your legal options.