What is a Partnership

A partnership is a business arrangement in which two or more people own an entity, and personally share in its profits , losses , and risks . The exact form of partnership used can give some protection to the partners. A partnership can be formed by a verbal agreement, with no documentation of the arrangement at all.

How to Form a Partnership

The main steps involved in forming a partnership are as follows:

1. Select a name for the partnership

2. Register the trade name for the partnership

3. Create and sign a partnership agreement

4. Obtain tax licenses and other operating licenses as needed

5. Obtain all relevant types of business insurance

The Partnership Agreement

When a verbal partnership agreement is used, there may be subsequent disagreements among the owners at a later date regarding what was originally agreed to. Consequently, it makes sense to create a written document that states how certain situations are to be handled. This partnership agreement should at least cover the following topics:

• The rights and responsibilities of each partner

• Whether partners are designated as general partners or limited partners, since this impacts their responsibility for the liabilities of the partnership

• The proportions of partnership gains and losses to be apportioned to each partner

• Procedures related to the withdrawal of funds from the partnership, as well as any limitations on these withdrawals

• How key decisions are to be resolved

• Provisions regarding how to add and terminate partners

• What happens to partnership interests if a partner dies

• What steps to follow to dissolve the partnership

• The proportions of residual cash paid out to the partners in a liquidation

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