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Starting a Business in the Greater Hickory Metro Area of North Carolina

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Partnership

A partnership is a legally recognized entity between two or more people who agree to contribute money, labor, property, or skills and share in the business profits, losses, and management decisions. There are two types of partnerships—general and limited.

General Partnership: each partner is held personally liable for all debts, taxes, and other claims against the partnership.

Limited Partnership: has both general partners and limited partners. It restricts the amount of personal liability to a limited partner. It allows investors to contribute but will expose them to a limited amount of liability AND management control. A limited partner is only personally liable up to the amount of investment made.

Advantages:

  1. Simplest form of business for two or more owners
  2. Business can be established with minimal formal documentation (However, it is recommended that partnerships have a formal written agreement with provisions for death, disability, liability, compensation, benefits, and dissolution)
  3. Profits and losses belong to the partners
  4. Partners have freedom to operate the business on behalf of the partnership (i.e., they can hire/fire employees, borrow money, or enter into contracts)
  5. No income tax on partnership entity (it’s passed on to individual partners)
  6. Buy/sell agreements
  7. Availability of resources/skills from all partners
  8. Limited liability partners enjoy lower risks

Disadvantages

  1. General partners liable for all debts and actions of the partnership (joint and several liability)
  2. Limitations apply to raising investor capital (e.g.,
    all investors would be partners)
  3. Responsibilities and actions of partners, if not specifically written out, can overlap or contradict one another
  4. Partnership income added to other sources of income and taxed at owner’s personal tax rate
  5. Complications with taxes arise if fiscal year varies from calendar year
  6. Partnership entity lacks perpetual existence in the event of death, disability, or withdrawal of a partner (provisions must be made in advance)

Courtesy of NC Small Business and Technology Development Center's Business Startup and Resource Guide.

 
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©Greater Hickory Metro Business Development Network, 2006