You and your best friend are finally ready to take the next step and turn your t-shirt printing side hustle into a small business. You have the knowledge, materials, and ideas, but you need to decide which business structure is right for you. You’ve probably wondered what is a partnership business?
A partnership is a simple business structure that outlines a formal agreement between two or more people to do business together.
A partnership has advantages but may not be the best path for everyone. This guide breaks down the pros and cons of building a partnership and how to get started if it is indeed the best choice for you.
There are benefits and drawbacks to setting up a new business as a partnership. You may have a couple of questions, like what is the difference between LLC vs Partnership or limited partnership vs limited liability partnership. Some of these pros and cons depend on the kind of partnership you choose. Let’s define partnership business structures:
All partnership agreements and structures offer benefits to the partners involved, such as:
These make a partnership a good choice for those just starting out on a new business venture, especially if you’re not sure the idea is viable.
There are also drawbacks to starting your business as a partnership. These include:
You should think carefully about what you’re willing to risk to set up your small business if you’re considering a partnership. While it’s simple to start and allows you to test the viability of your business idea, you do risk losing personal assets if something goes wrong.
Partnerships are relatively simple to start. In just four steps, you can open your online shop:
The first thing you must do is decide which partnership structure works best for your business. A general partnership equally distributes liability, while an LP puts more power (and liability) in one person’s hands. An LLP limits all partners’ liability to a certain extent.
This is the most important step. Your partnership agreement outlines how you’ll:
You must have all partners sign the agreement to avoid any confusion. Further information you should specify in the partnership agreement includes policies for:
While you probably don’t want to believe you’ll have future problems with any partners, it’s important to protect yourself in case something does happen.
Before you turn in your official paperwork, your partnership needs a name. There are a few guidelines for partnership names, such as:
A quick online search should help you find the rules for your specific state.
Lastly, you must make it official. Register the partnership with your state by completing an application. Your business must also acquire an employer identification number (EIN). You should check your state’s specific rules and processes for submitting partnership paperwork as they can vary.
You may be wondering how partnerships are taxed or, now that you know what is a general partnership in business, you must decide if it’s the right choice for you. The three main factors to consider include:
Partnerships are often used for companies that offer professional services in which partners accept the personal liability risk.
To avoid having to set up a partnership in person, simply fill out this EIN form to apply for a partnership online right now.