What You Should Know Before Forming a Partnership
NFIB:
As John D. Rockefeller once said, “It’s better to have a friendship based on a business partnership than a business partnership based on a friendship.” What he meant is that forming a partnership is a serious endeavor, and that a partnership must follow strict business principles to become successful. After all, statistics show that well over fifty percent of all partnerships end in failure. (However, statistics also show that partnerships are four times more likely to succeed than sole proprietorships.) Workshop contributor Jeff Moses discusses certain benefits (and drawbacks) that partnerships offer.
- Partnerships enable each member to share work and costs, with less total up-front expense than when forming a corporation. Partnerships are easily converted to corporations as the business becomes more successful. Partnerships in themselves are usually not taxable, whereas corporations are. Individual partners within a partnership are usually taxed separately, according to state and federal rates. For complete information about this particular issue regarding partnerships, consult with your attorney or accountant.
- Each member of a general partnership is legally responsible for the business activities of all other partners. This means that if one of the partners drains the company savings account and heads to Brazil, every other partner is liable for what was taken, along with taxes on the amount and any resulting legal bills. This liability can extend even to damages occurring while one of the partners is at work on partnership business, such as causing an auto accident while driving to a business appointment.
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