If a business with more than one owner has not filed state paperwork to become a corporation or LLC, then it is considered a partnership. Partnerships are the simplest, least expensive structures for business ownership by more than one person. But there are some things you should know before finalizing your business plans. For instance, there are two basic types of partnerships: general partnerships and limited partnerships. In this article The Jayson Law Group LLC will cover some of the basic facts of both types of partnerships.

Creating a Partnership in New Jersey

Unlike other structures, simply agreeing to do business with someone is enough to establish an ordinary partnership. Though, of course, the business must be locally registered, have an employer identification number from the IRS, a state seller’s license, a zoning permit from your local planning board, and any other licenses needed to operate your specific type of business.

Even though a partnership is not required to have a written agreement, it is always a good idea to detail the ownership rights and responsibilities and profit shares of all of the partners in the partnership into a written partnership agreement.

Liability of Owners

The partners in a general partnership are held legally responsible for all business obligations. Meaning that if the business is unable to pay its debts; the owners’ personal property can be taken as collateral and repayment. If the partnership is set up as a limited partnership, then only the general partner, who typically runs the business, has personal liability. The limited partners are usually only passive investors. In return for giving up management authority, the limited partner’s personal liability is maxed at the mount of his or her investment; their investment goes toward paying of business debts, but not their personal property. Complex securities laws often apply to the sale of limited partnership interests, so it is a good idea to consult an experienced NJ business lawyer if you are interested in establishing a partnership.

Taxes on Partnerships

Much like LLCs, a partnership is what is called a “pass-through entity.” This means that the partnership is not taxed separately from its owners. Instead, owners are individually taxed based on their individual income tax returns calculated from reported profits and losses. In addition to filing a yearly tax return, the partners must make quarterly estimated tax payments each year.

Ending a Partnership

One of the disadvantages of a partnership is that when one partner wants to leave the partnership, it dissolves the partnership. When a partnership is dissolved, remaining business debts and obligations must be fulfilled, as well as any assets and profits divided as per the partnership agreement. To prevent a messy ending for your business, a buy-sell agreement can be created in order decide in advance what happens when one partner is no longer involved in the business.

At Jayson Law Group, our Union NJ business attorneys are dedicated to helping you protect what you have worked so hard to build, either through drafting contracts or business litigation.