Choosing to open a business with a friend, family member or mutually interested investor is a big step that should not be taken without serious thought and consideration. There are both pros and cons to entering a business partnership. Before signing contracts that can be challenging and expensive to get out of, future business owners, whether in Michigan or elsewhere, need to investigate how any proposed partnerships will actually affect them in the future in order to make informed decisions.
What is a business partnership? A business partnership is built when two or more individuals come together to start and share ownership of a company. Owners typically share equally in profits, losses and responsibilities.
There are several types of partnerships. These include general partnerships, limited partnerships and joint ventures. General partnerships involve an equitable distribution of responsibilities. Limited partnerships allow one or more partners to invest in a company, but not take very active roles within the company. Finally, joint ventures are similar to general partnerships, but these are usually only entered into for a limited time, typically until a project is completed.
Forming a partnership requires registering the business and applying for all appropriate licenses and permits. On top of this, it is important to gain an understanding of partnership taxes. This includes learning how to obtain a tax ID and learning what type of filing information is required when filing business taxes.
There are certain advantages to opening a business with a partner, including the sharing of expenses and utilizing the areas of expertise of each partner. Disadvantages may include the inability for one person to make important decision regarding the business without his or her partner or partners present and joint liability for any debts or the results of a partner’s questionable actions. It will be important to weigh these and other pros and cons before making the decision to enter this type of arrangement. Many potential issues can be avoided by creating solid partnership agreements. Assistance is available to help with this and the numerous other legal needs that accompany opening, owning and operating a business in Michigan.
Source: sba.gov, “Partnership“, Accessed on June 17, 2015