School, Family, and Community Partnerships: Your Handbook for Action

PARTNERSHIP

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Photo by: Yuri Arcurs

In the words of the Uniform Partnership Act, a partnership is "an association of ii or more persons to carry on as Co-owners of a business for profit." The essential characteristics of this business class, then, are the collaboration of 2 or more owners, the carry of business for turn a profit (a nonprofit cannot be designated equally a partnership), and the sharing of profits, losses, and assets past the joint owners. A partnership is not a corporate or separate entity; rather it is viewed every bit an extension of its owners for legal and tax purposes, although a partnership may ain property as a legal entity. While a partnership may exist founded on a simple agreement, even a handshake between owners, a well-crafted and carefully worded partnership agreement is the all-time style to begin the business organization. In the absenteeism of such an agreement, the Compatible Partnership Human action, a set of laws pertaining to partnerships that has been adopted past most states, govern the business.

There are two types of partnerships:

General PARTNERSHIPS In this standard form of partnership, all of the partners are every bit responsible for the business organisation's debts and liabilities. In addition, all partners are immune to exist involved in the management of the company. In fact, in the absence of a statement to the opposite in the partnership agreement, each partner has equal rights to control and manage the business. Therefore, unanimous consent of the partners is required for all major actions undertaken. Be advised, though, that any obligation fabricated by one partner is legally binding on all partners, whether or non they have been informed.

Express PARTNERSHIPS In a limited partnership, one or more partners are full general partners, and 1 or more are express partners. General partners are personally liable for the business organization's debts and judgments against the business; they can also exist directly involved in the management. Limited partners are substantially investors (silent partners, so to speak) who exercise non participate in the company'due south direction and who are as well not liable beyond their investment in the business. Country laws determine how involved limited partners can exist in the 24-hour interval-to-mean solar day business organisation of the firm without jeopardizing their express liability. This business organization form is especially attractive to real estate investors, who benefit from the tax incentives available to express partners, such as being able to write off depreciating values.

ADVANTAGES OF FORMING A PARTNERSHIP

Collaboration. Equally compared to a sole proprietorship, which is essentially the aforementioned business form but with simply one possessor, a partnership offers the advantage of allowing the owners to draw on the resources and expertise of the co-partners. Running a business on your own, while simpler, tin also be a abiding struggle. Simply with partners to share the responsibilities and lighten the workload, members of a partnership oftentimes observe that they have more time for the other activities in their lives.

Tax advantages. The profits of a partnership pass through to its owners, who report their share on their private tax returns. Therefore, the profits are only taxed one time (at the personal level of its owners) rather than twice, equally is the case with corporations, which are taxed at the corporate level and so again at the personal level when dividends are distributed to the shareholders. The benefits of single revenue enhancement tin can also be secured by forming an Southward corporation (although some ownership restrictions employ) or by forming a limited liability company (a new hybrid of corporations and partnerships that is still evolving).

Simple operating structure. A partnership, as opposed to a corporation, is fairly simple to institute and run. No forms need to exist filed or formal agreements drafted (although it is advisable to write a partnership understanding in the effect of hereafter disagreements). The about that is ever required is perhaps filing a partnership document with a land office in order to register the business's name and securing a business concern license. Equally a effect, the annual filing fees for corporations, which can sometimes exist very expensive, are avoided when forming a partnership.

Flexibility. Because the owners of a partnership are usually its managers, especially in the example of a small-scale business, the company is fairly easy to manage, and decisions can exist made quickly without a lot of hierarchy. This is not the case with corporations, which must accept shareholders, directors, and officers, all of whom take some degree of responsibility for making major decisions.

Compatible laws. One of the drawbacks of owning a corporation or limited liability visitor is that the laws governing those business entities vary from state to land and are irresolute all the time. In contrast, the Uniform Partnership Act provides a consistent set of laws well-nigh forming and running partnerships that go far easy for modest business owners to know the laws that affect them. And because these laws take been adopted in all states but Louisiana, interstate business is much easier for partnerships than information technology is for other forms of businesses.

Acquisition of upper-case letter. Partnerships more often than not have an easier time acquiring capital letter than corporations because partners, who apply for loans every bit individuals, tin can usually get loans on better terms. This is considering partners guarantee loans with their personal assets as well as those of the business. As a upshot, loans for a partnership are subject area to state usury laws, which govern loans for individuals. Banks also perceive partners to be less of a risk than corporations, which are just required to pledge the business organization's assets. In addition, by forming a limited partnership, the business can attract investors (who volition non be actively involved in its management and who will enjoy express liability) without having to form a corporation and sell stock.

DRAWBACKS OF FORMING A PARTNERSHIP

Conflict with partners. While collaborating with partners tin be a great advantage to a small concern possessor, having to actually run a business from day to day with one or more partners can be a nightmare. First of all, you lot have to surrender absolute control of the business and learn to compromise. And when large decisions have to be made, such equally whether and how to expand the business, partners ofttimes disagree on the best course and are left with a potentially explosive situation. The best way to deal with such predicaments is to anticipate them by drawing upwardly a partnership agreement that details how such disagreements will be dealt with.

Say-so of partners. When one partner signs a contract, each of the other partners is legally bound to fulfill it. For example, if Anthony orders $10,000 of figurer equipment, it is equally if his partners, Susan and Jacob, had also placed the lodge. And if their business cannot beget to pay the bill, and so the personal assets of Susan and Jacob are on the line also every bit those of Anthony. And this is true whether the other partners are aware of the contract or not. Even if a clause in the partnership agreement dictates that each partner must inform the other partners earlier any such deals are made, all of the partners are still responsible if the other party in the contract (the computer visitor) was not enlightened of such a stipulation in the partnership agreement. The only recourse the other partners have is to sue.

The Uniform Partnership Act does specify some instances in which total consent of all partners is required:

• Selling the busigood will
• Decisions that would compromise the busiability to function usually
• Assign partnership property in trust for a creditor or to someone in commutation for the payment of the partnership'south debts
• Admission of liability in a lawsuit
• Submission of a partnership claim or liability to arbitration

Unlimited liability . As the previous example illustrated, the personal assets of the partnership'due south members are vulnerable because in that location is no separation betwixt the owners and the business organization. The primary reason many businesses choose to contain or course limited liability companies is to protect the owners from the unlimited liability that is the main drawback of partnerships or sole proprietorships. If an employee or client is injured and decides to sue, or if the business runs up excessive debts, and so the partners are personally responsible and in danger of losing all that they ain. Therefore, if because a partnership, determine your assets that will be put at risk. If you possess substantial personal assets that yous will not invest in the company and practise not desire to put in jeopardy, a corporation or limited liability visitor may be a better option. But if you are investing well-nigh of what you ain in the business, and so you don't stand to lose any more than if you incorporated. Then if your business is successful, and you lot observe at a later date that you now possess extensive personal assets that you would like to protect, you tin can consider irresolute the legal condition of your business organisation to secure limited liability.

Vulnerability to death or difference. Unlike corporations, which exist perpetually, regardless of ownership, general partnerships dissolve if ane of the partners dies, retires, or withdraws. (In limited partnerships, the death or withdrawal of the express partner does non affect the stability of the business.) Even though this is the constabulary governing partnerships, the partnership agreement can contain provisions to continue the business. For example, a provision tin be made assuasive a purchase out of a partner's share if he or she wants to withdraw or if the partner dies.

Limitations on transfer of ownership . Unlike corporations, which exist independently of their owners, the existence of partnerships is dependent upon the owners. Therefore, the Compatible Partnership Human action stipulates that ownership may not exist transferred without the consent of all the other partners. (One time once again, a limited partner is an exception: his or her interest in the company may exist sold at volition.)

CHOOSING A PARTNER

Because of the need for compromise and the dynamics of shared authority that come up along with sharing a business, partnerships tin be very difficult to maintain and run efficiently. Therefore, the single about important determination a pocket-size business owner has to brand when forming a partnership is the pick of a partner. In fact, warns Edward A. Haman, in How to Write Your Own Partnership Agreement , "yous should merely accept on a partner if you absolutely need that person'south money or expertise." As an alternative, he advises, you could endeavour to "get the money equally a loan, or rent the person as a consultant to get the expertise." But if you make up one's mind that forming a partnership is the best choice, consider the post-obit when selecting a partner (anyone may become a partner, except minors and corporations):

ASSETS

• How much does your partner own in personal assets? If you ain much more than your partner, then creditors volition come later you in the effect of extensive debts.

PERSONALITY

• Practise you possess compatible personality types?
• How practice you each deal with stress?
• How do you brand decisions? Does your prospective partner tend to talk things through with others or make impulse decisions?

ROLES

• What function do each of y'all intend to take in the business? Are these roles compatible? Do you both hope to be in charge of the accounts or dealing with vendors, for instance? Or can yous dissever upwards the duties in a way that satisfies both of you?

SHARING RESPONSIBILITIES

• How much time volition your partner contribute to the enterprise?
• Can you lot count on you partner to testify upward to piece of work on time? Or you lot will be expected to cover for him?
• Is your prospective partner a difficult worker, or will he or she routinely leave tasks for you to complete?

GOALS FOR THE BUSINESS

• How do each of you envision the future of the business concern? Do you hope to build up a solid business and so aggrandize to other locations? Does your partner share that vision or does he or she hope merely to be able to make a decent living out of one business organisation with fewer responsibilities than would be required if running a chain of stores?

FORMING A PARTNERSHIP

RESERVING A NAME The beginning pace in creating a partnership is reserving a name, which must be done with the secretary of land's office or its equivalent. Nearly states require that the words "Visitor" or "Associates" be included in the name to show that more than ane partner is involved in the business. In all states, though, the proper name of the partnership must not resemble the proper name of whatever other corporation, express liability company, partnership, or sole proprietorship that is registered with the state

THE PARTNERSHIP Understanding A partnership can be formed in essentially two ways: by verbal or written agreement. A partnership that is formed at will, or verbally, tin also exist dissolved at will. In the absenteeism of a formal agreement, country laws (the Uniform Partnership Deed, except in Louisiana) will govern the business. These laws specify that without an understanding, all partners share equally in the profits and losses of the partnership and that partners are not entitled to compensation for services. If you would like to structure your partnership differently, you will need to write a partnership understanding.

It may be advisable to consult a lawyer before drafting the agreement, just you should at least research the effect on your own. A thorough partnership agreement should generally cover the following areas:

• Name and address
• Duration of partnership—You lot can specify a finite date on which all business organisation will terminate or you can include a general clause that explains the partnership volition exist until all partners concord to dissolve it or a partner dies.
• Purpose of business
• Partners' contributions—These may exist in cash, property or services. Be sure to determine the value of all non-cash contributions.
• Partners' compensation—Determine how profits will be separate up and how often. Also decide if any of the partners will receive a salary.
• Management Authorisation—Will partners be able to make some decisions on their own? Which decisions will require the unanimous consent of all partners?
• Piece of work hours and holiday
• Kinds of exterior business organization activities that will be allowed for partners
• Partner withdrawal—Decide how the death, retirement, withdrawal, disability, or expiry of a partner will be handled through a buy-sell agreement. Also determine whether or not a partner who has only withdrawn will exist allowed to operate a competing business.
• Disposition of the partnership's name if a partner leaves
• How to handle disputes—Decide whether or not mediation or arbitration will be provided for in the case of disputes that cannot be resolved amid the partners. This is a way to avoid costly litigation.

RIGHTS AND RESPONSIBILITIES OF PARTNERS

The Uniform Partnership Act defines the basic rights and responsibilities of partners. Some of these can be changed past the partnership agreement, except, equally a full general dominion, those laws that govern the partners' relationships with tertiary parties. In the absence of a written agreement, then, the following rights and responsibilities utilise:

RIGHTS

• All partners have an equal share in the profits of the partnership and are equally responsible for its losses.
• Whatsoever partner who makes a payment for the partnership beyond its upper-case letter, or makes a loan to the partnership, is entitled to receive interest on that money.
• All partners have equal property rights for property held in the partnership's proper noun. This means that the use of the holding is equally available to all partners for the purpose of the partnership's business.
• All partners take an equal interest in the partnership, or share of its profits and assets.
• All partners have an equal right in the management and conduct of the business.
• All partners have a right to access the books and records of the partnership'due south accounts and activities at all times. (This does non apply to limited partners.)
• No partner may exist added without the consent of all other partners.

RESPONSIBILITIES

• Partners must report and plough over to the partnership whatever income they have derived from use of the partnership's holding.
• Partners are not immune to conduct business organization that competes with the partnership.
• Each partner is responsible for contributing his or her full fourth dimension and energy to the success of the partnership.
• Any property that a partner acquires with the intention of it being the partnership's property must be turned over to the partnership.
• Any disputes shall be decided by a majority vote.

Further READING:

Clifford, Denis. The Partnership Volume: How to Write a Partnership Agreement . 5th ed. Nolo Press, 1997.

Edwards, Paul. Teaming Upwards: The Modest-Business Guide to Collaborating with Others to Heave Your Earnings and Expand Your Horizons . G.P. Putnam'southward Sons, 1997.

Fay, Jack R. "What Course of Buying is Best?" CPA Journal. August 1998.

Haman, Edward A. How to Write Your Own Partnership Agreement . Sphinx Publishing, 1993.

Handmaker, Stuart A. Choosing a Legal Construction for Your Business . Prentice Hall, 1997.

Selecting the Legal Structure for Your Business Small Business Assistants. northward.a.

Steingold, Fred S. The Legal Guide for Starting and Running a Small Business . Second Edition. Nolo Press, 1995.

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Source: https://www.referenceforbusiness.com/small/Op-Qu/Partnership.html

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