Unlike LLCs or corporations, forming a partnership is a cheap and simple form of business structure for more than one owner. Surprisingly, there is no legal paperwork required to form a partnership. They are defined as a co-owned business that has not filed papers with the state to become a corporation or LLC. Two or more people can form a business partnership for profit with a verbal agreement.
Partnerships lack, what is called, “limited liability.” In contrast, corporations and LLCs, are often formed specifically to qualify for legal protection against personal liability. This lack of limited liability in partnership businesses means that all partners are personally responsible for debts, obligations, and profits. Therefore, if the business is sued, or creditors are seeking repayment, personal possessions of all partners can be seized.
Along with joint liability, all partners have authority over the business. Each partner can make decisions for the business without consent of the remaining partners, while all are still equally responsible. For example, all partners would be personally responsible for a loan taken out for the business, that only one partner signed for alone. This is the nature of a partnership, and a critical reason why you should only join into one with individuals you fully trust.
Risks of partnerships show the need for partnership agreements. Even though there is no state law requirement for paper agreements, it is highly recommended that you seek legal guidance to create one. This helps to define the duties and expectations of all business partners, guidelines on decision making, how profits and losses are to be handled, and even how to proceed in bankruptcy or the loss of a partner.
Do not enter into a business partnership without forming the legal agreements to protect all involved. Contact our Business Lawyers at Angel, Coil & Bartlett for a legal consultation and expertise when forming a partnership.
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