What You Need to Know in Establishing a Partnership

By: Jamil Estorninos
Submitted: 2008-07-02 16:24:00
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When two or more persons join, a partnership is formed. In business law, a partnership is simply an association of persons for profit.

Persons mean individuals, groups of individuals, companies and corporations.

In this type of business organization, the partners divide the organization’s profits among themselves, manage and control the business operation of the partnership.

As they share in the profits, it is but natural that they also share in the losses. Here, the partners are jointly and independently liable for the business debts and obligations. This is called the principle of joint liability.

Partners may also enter into a contractual agreement with another person or business entity. And because partners are vested with joint authority, the agreement entered into by an individual partner will bind the whole partnership and all its partners.

Under the law, the life of a corporation has three (3) stages: Creation, organization, and dissolution.

The Uniform Partnership Act (UPA) has been adopted by many states as the governing law for this kind of business venture. California in particular has adopted UPA in its Corporations Code.

Generally, partnerships may be express or implied.

• Express - Created by complying with formal requirements set forth in the laws

• Implied - Created through verbal or tacit agreement of the parties and there is no formal requirements or signed documents.

Further, a partnership may be either general or limited.

• General - All partners manage the business operations and are all liable for the partnership’s debts. And under the principal-agent relationship, all partners are liable for torts committed by the partnership and its agents.

• Limited - Not all but only one or more of the general partners manage the organization’s operations and assume personal responsibility for partnership’s debts. Those who take no part in the business operations will only be liable to the extent of their contribution to the partnership.

The Uniform Limited Partnership Act governs limited partnerships in most states.

A partnership will be held to be in existence when the following elements are present:

• intention of the parties
• sharing of profits and losses
• joint administration and control of business operation
• capital investment by of partners
• common ownership of property

Under state and federal tax laws, partnership incomes are not taxable. The income is taxable to the partners in proportion to their share in the company's profits. Every partner will have to report his/her income and file tax returns individually and personally.

Although the simplest business organization to form, establishing a partnership can become intricate at times. Adding to that is the fact that rules and regulations generally vary from one state to another.

The good news is that there are people out there who know the intricacies and needs of this type of business organization. Consulting with a partnership establishment lawyer may help you create just the right partnership you and your partners have in mind.

It will always be a pleasure doing business; for as long as you are doing it right.

Article source: Expert Articles