Published on September 28th, 2020 | by Maryn Mcdonnell0
How to Set Up a Partnership in Business: 5 Things to Consider
A partnership can seem like a good idea when you have a friend, colleague, or family member who you would like to get into business with and make some money. Before you rush into getting into one, you ought to understand that you will be responsible for all your partner’s actions.
The good thing with a partnership is that you get to work with a like-minded person. Your partner can bring with them additional financing or much-needed expertise in that area. But how do you set up a partnership to guarantee business growth?
1. Settle On a Business Name
The first thing you will need to do is to settle on the official business name. Although choosing a name may seem like a simple process, you will need to ensure that the chosen name doesn’t infringe on the trademark rights of another firm.
Conducting a name search online can help you determine whether another business or entity is using that name. Alternatively, consider running a search of known and registered company owners.
2. Determine the Type of Partnership
Having settled on a name, you now need to decide which type of partnership will work for you. You have several types of partnerships to choose from, such as:
- Limited Liability Partnership: The partnership makes it possible for all the parties involved in the business to get shielded from liability arising from their actions.
- Limited Partnership: Included in it are both general and limited partners.
- General Partnership: It only has a single type of partner. As such, all partners will be involved in the company’s day-to-day operations.
Depending on where the business is registered, you may find there exists numerous variations of the aforementioned partnership types. As you determine the type of partnership to use, make sure to agree on the criteria to use when resolving partnership disputes.
3. Management, Investments, and Business Profits
Having determined your preferred type of partnership, you now have to agree on how the business will be managed. At this juncture, all those involved must also agree on how much each party will invest, and the manner in which they will share their business profits.
Often, a large investment qualifies one for a larger stake in the business. But then again, the largest investor may not want to be involved in running it. Make sure also to agree on which parties can make the daily decisions affecting the business.
Agreeing on such issues early on helps to reduce the occurrence of business disputes between the parties involved in this partnership.
4. Come Up with a Partnership Agreement
When all the preliminary decisions have been made, it will now be time to draft the partnership agreement. You may want to seek the input of fraud lawyers to ensure that everything is above board included in the agreement will be detailed on how the partners will share profits and the stake owned by each partner. The agreement also should include management details.
5. Bank Accounts & Employer Identification Numbers
The last step is to apply for an employer identification number before opening a bank account. A business bank account allows you to separate the personal income taxes from the business income taxes. It also guarantees that the finances will not get mixed up.
Depending on where you live, you may not have to hire an attorney to assist you with the registration process. However, it’s highly recommended that you include an attorney throughout the formation of the partnership. An attorney will ensure it’s formed in accordance with the local laws, and also ensure you don’t make any mistakes.