Business partnerships are companies that are formed when two or more people or entities enter a joint legal relationship to sell products or services. The partners invest their own money in the business, share in the profits or losses, and share in the liabilities of the business. Business partnerships are common in the United States, reportedly comprising more than 60 percent of net business income.

Why Do People or Entities Form Business Partnerships?

Business partnerships are easier and less expensive to set up than forming a corporation. And filing taxes is less complex because the partners are taxed individually based on their share of the partnership income. Business partnerships can be used to attract talent having complementary skills.

What Types of Business Partnerships Are There?

There are three types of business partnerships:

A general partnership is where the partners participate in the daily operations of the business and share liability for debts and lawsuits.
A limited partnership is where one or more general partners are involved in and manage the business. They have liability for their business decisions. The other partners aren’t involved in the daily operations and don’t share in the business liabilities.
A limited liability partnership is formed to protect all partners from liabilities.

How to Start and Structure a Business Partnership

Structuring business partnerships start with deciding what form of partnership you want to create. Then, make sure to choose your business partners wisely. Do they share your vision and values? Next, develop the structure of the organization. That should include a definition of the individual roles and responsibilities, a determination of who makes what types of decisions, and a compensation structure. Write a partnership agreement that includes an exit strategy. Now, name and register your partnership, and get a federal Tax ID number.

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