When two or more people come together to operate a business, they are said to be in a partnership. In a general partnership, each partner shares profits and losses equally unless otherwise specified in the partnership agreement. For general partnerships, there is no need for a written agreement to make the partnership valid.
A limited partnership occurs when one or more partners are silent partners or investors. In this scenario, a written agreement must be created to protect the interests of the limited partners from the liabilities of the partnership. A joint venture is like a partnership in that two parties come together to achieve a common goal. However, the partnership may have a defined length and be applicable only to the creation of a particular product or for a specific project.
Each partner is required to show care for his or her other partners as each partner is bound by any agreements that another partner makes. However, if it is shown that an agreement was made in bad faith, it may be possible for the other partners to take legal action. It may also be possible to strip the offending partner of any profits obtained from an illegal deal. In the event that a valid agreement is not honored, other parties to the agreement could hold a partner personally liable for any damages related to breach of contract.
Deciding whether to be in a partnership or to form a corporation may be an essential part of business planning. Regardless of what shape the business takes, it may be worthwhile to talk to a business law attorney before creating business agreements. An attorney may be able to review all contracts or agreements to increase the odds that they are created properly and reflect the wishes of all parties involved.
Source: Findlaw, "Partnership Rules and FAQs", November 24, 2014