Step Two: Partnerships
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Step One: Getting Started
Step Two: Operating A Business
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A business partnership is created when two or more persons agree, in person or in writing, to start a business. To form a partnership in most North Carolina localities, you will simply need to register your trade name (click here), and obtain a business license. To find the specific requirements for forming a LLC partnership or a limited partnership, contact:
Department of the Secretary of State, Corporations Division
PO Box 29622
Raleigh , NC 27626-0622
Toll-free: 1 (888) 246-7636 ( leave message )
The two main types of partnerships are: General and Limited.
A general partnership is the easiest type of partnership to form. For specific information about requirements related to starting a business, please click here.
One additional step which you may wish to take if forming a general partnership is preparing and signing a partnership agreement. Partnership forms should be prepared by your attorney. For your convenience, a sample of a partnership form may be accessed by clicking here.
The biggest disadvantage to a General Partnership is that each partner is liable for the whole business. To explain this, here is an example:
You and your friend Joe Smith form a business called Water Works that sells custom-made plumbing fixtures. Unfortunately, Joe uses money set aside for the business to fund his vacation in Florida . A month later, Water Works folds, but it owes its creditors thousands of dollars. Joe is unable to provide any funds, so guess who is responsible for these debts?
Even though the business is a partnership, if your partner(s) turns out to be a deadbeat, you will be responsible for not half, but all, of the liabilities.
You are also responsible for any poor business decisions Joe may have made. Compare it to a marriage. If your spouse buys a house in an unsafe neighborhood while you are away on business, you are just as responsible for the house payments as your spouse is, even though it wasn't your decision to buy the house.
A Limited Partnership is similar to the general partnership, with several major exceptions. There are two actual classes of partners that make up the partnership: General Partners and Limited Partners. General Partners have the same pros and cons as in a general partnership above; however, each Limited Partner in a limited partnership is only liable to the extent of his or her individual investment. Limited Partners have no say in the day-to-day operations of the company; the General Partners actually manage the company. In essence, a limited partner is an investor. In the case of the Water Works example above, a limited partner's loss would only amount to the investment made in the company. The company might fold due to one of the general partner's poor decisions, but a limited partner would not have to bear financial losses above what was initially invested in the business. However, general partners (those that manage day-to-day operations) may have the same liabilities as under a general partnership.
A limited partnership is a bit more complicated (and expensive) to start than a general partnership. In addition to registering your trade name to protect it, you must file a Certificate of Limited Partnership with the NC Secretary of State's office.
Partnership Pros and Cons
Pro. The largest advantages of the partnership are that it is relatively simple to start a business this way, and it allows the business to benefit from a combination of talents. Another advantage, in the case of a limited partnership, is that each limited partner is only liable to the extent of his or her individual investment.
Con. The largest disadvantage with a general partnership is that you are personally responsible for more than half of the business' losses, if it incurs losses. You are also responsible for your partner's business decisions, even if they are bad decisions. Also, as in the case of the sole proprietorship, with a partnership, you and your partner are not protected from liability related to the business. For instance, if an unhappy customer sued you, you could lose personal belongings, like your car.
For additional information about requirements related to starting your business, please click here.
|For more information, contact:|
Small Business Center Director