A partnership in business is the relationship formed between two or more persons who carry on a business or trade for a profit. A complete definition of a partnership agreement is determined on a state by state basis within the state statutes.
Sometimes businesses can be looked at as partners in the eyes of the court, even if you do not have a partnership agreement.
In a partnership agreement in business, each party could contribute money, property, labor or skill (sweat equity), with the expectation to share in company profits and losses of the business.
Each case is fact-specific and courts look at disputes on a case by case basis.
Formation of a Partnership
As stated earlier, the action of the parties can form a legal partnership. However, the preferred method of formation is to file the proper organizational documents with the Secretary of State. When forming a partnership, parties should seriously think about what is a business partnership agreement and whether it spells out the legal rights of each party.
A partnership agreement should file tax returns with the IRS that shows income, deductions, gains, losses, etc., from its operation. In limited partnerships, the business itself does not pay income tax.
Instead, each partner gets to pass through profits and losses to their respective tax liabilities. Partners are not considered employees in the business. Therefore, no W-2s are issued.
Structuring the Business Plan Partnership Agreement
Depending on the how the ownership is planned out, the business partnership agreement structure must be designed appropriately up front.
It is always advisable to seek legal advice from a limited partnership attorney, who can understand your business plan and recommend the best partnership structure for your specific business. See information about the advantages of a partnership agreement in business.
Personal Liability Issues
A common dispute involving personal liability in a business partnership often arises in business. If you run a general partnership, then you are personally liable for the partnership’s obligations and debts.
In a limited liability partnership, owners are protected so long as they comply with statutory requirements in under their respective state law.
For additional questions about what is a partnership, or concerns about business plan partnership agreement, or representation with business structure and formation, call our Colorado partnership law attorneys at 1-866-601-5518 for a free initial consultation.