When more than one person starts a business, that business is a partnership. There are two types of partnerships – a general partnership and a limited partnership. While partnerships are run much like sole proprietorships, there are many differences, advantages, and disadvantages to each. It is important to establish guidelines for the partnership right from the start, so that each partner knows what their role in the company is, and what their liability is as well.

A general partnership is the easiest type of partnership to set up. It is set up almost exactly like a sole proprietorship in that the only requirement is a business license, but in most cases, a partnership agreement also should be prepared. The partnership agreement should establish how profits and losses will be shared, how the partnership will be terminated if one of the partners wants out or dies, and other important guidelines concerning how the business will be run. Almost all states have laws that govern partnerships. If a partnership agreement does not exist, then the statutory rules will control aspects of the partnership’s operation.

For many small businesses, a partnership – whether it is general or limited – might not be the best choice for business structure. Even though it is less expensive and easier to set up a partnership, incorporating, or forming a limited liability company might be considered superior for liability protection issues. If you have questions as to what business formation best fits your business needs, contact Alan Geraldi at (925) 236-0045.