Changing the structure of your business from a sole proprietor to a partnership is an exciting step for your business. It`s important to know who you`ll be doing business with and how this new alliance will add value to your business. This is particularly important in a partnership, as each partner is individually responsible for the actions of the partnership. For more information on the structure of the partnership, contact LegalVision`s business lawyers on 1300 544 755 or fill out the form on this page. This content is provided to you by Guardian Professional. To learn more, you can join the Small Business Network here. Compared to the other forms of business listed below, managing a sole proprietor is quite simple. You must keep accurate records of your income and expenses and file an annual tax return for self-assessment. Partnerships often resemble a sole proprietor – except they have more than one owner, and each may be individually liable for all of the company`s debts if, for example, one partner leaves. A limited liability company (LLP) offers more protection to individual partners, as it limits liability to what each partner has invested in the company.
Being a sole proprietor is the easiest way to run a business because there are no registration fees to pay, the sole proprietor keeps all the profits, and bookkeeping is relatively easy. In addition, the sole proprietor has the right to make all decisions concerning the business and owns all the assets of the company. However, a sole proprietor is personally liable for the debts of the business. This means that if the business goes wrong, the sole proprietor can go bankrupt. This is, of course, quite serious and forces the sole proprietor to weigh the risks and opportunities of operating as a sole proprietor. Indeed, a partnership is like two or more sole proprietors joining forces to start a business together. We saw in the previous section that you need proof of DBA registration. In the case of a partnership, you must submit your business partnership agreement. This helps establish your ownership of the business. Keep in mind that your lender wants to make sure they are dealing with the right person when evaluating your loan application. In a sole proprietorship, since you are the sole owner, you have complete control over all aspects of your business, you have the freedom to make all the important decisions and all the profits of the business belong to you.
A partnership is similar to that of a sole proprietorship, but differs in that it has more than one owner. Virtually anyone can be a partner. A partner can be an individual, partnership, limited liability company, corporation or trust. The name of the partnership is either the name indicated in your partnership contract or the surname of the partners. If you want to work under a name other than the legal name of the company, you will need to register a DBA (as in a sole proprietorship). Once you`ve decided that you want to start a business and what that business will do, you need to decide how it will be structured. Simple user configuration. A partnership, unlike a business, is quite easy to start and manage. There is no need to fill out forms or create formal agreements (although it is advisable to draft a partnership agreement in case of future disagreements).
Perhaps the best thing to do is to submit a partnership certificate to a state agency to register the company name and obtain a business license. This avoids the annual registration fee for corporations, which can sometimes be very expensive, when setting up a partnership. However, this carries a greater risk: a sole proprietorship has unlimited liability, which means that you, and you alone as the owner of the business, are liable for any loss. Sole proprietorships tend to have less credibility with potential investors or lenders. More paperwork may seem like a burden, but for me, it made me want to make sure everything was up to date because it played into my need for organization, which is essential. The Uniform Law on Partnerships defines the basic rights and obligations of life partners. Some of them may be modified by the statutes, with the exception of the laws that govern the relations of partners with third parties. Therefore, in the absence of a written agreement, the following rights and obligations apply: RESERVATION OF A NAME The first step in establishing a partnership is to reserve a name, which must be done with the Secretary of State`s office or equivalent. Most states require that the words “company” or “partner” be included in the name to show that more than one partner is involved in the business. However, in all states, the name of the partnership may not sound like the name of another corporation, limited liability company, partnership, or sole proprietorship registered with the state.
A limited partnership therefore exists only when the conditions laid down by the law of the State are met. In general, a limited partnership certificate must be signed and submitted to the Secretary of State`s office, and in some cases, a limited partnership agreement must also be filed. If the conditions are not met, the partnership is treated as a general partnership or as an association taxable as a partnership. An important decision you need to make when starting your own business or starting your own business for the first time is deciding what kind of business structure you want to follow. However, the disadvantages of a partnership must always be taken into account. Limited partnerships. A limited partnership is a partnership with two classes of partners: general partners and limited partners. The general partners run the business and are personally responsible for all of the corporation`s obligations. Limited partners are similar to shareholders of a corporation in that they have no control over the corporation other than who will run it. Limited partners share in the profits of the company, but their potential losses are limited to the amount of their contributions to the company. A partnership allows you to spread responsibility and workload among several people. It can also be a strategic way to grow your business by involving other parties who may have additional skills, networks, or capital for investment.
As with a sole proprietor, each partner`s share of profits is treated as income. Therefore, you should only associate with people you trust. Of course, you also need to be able to work with them without spending all your time arguing. And they should add something to the business, probably beyond just money. Often, it is better to pay interest to a lender than to carry an unproductive partner. As a sole proprietor, you must report any business income or loss on your personal income tax return. The company itself is not taxed separately. The IRS calls this “pass-through” taxation because corporate profits go through the business to be taxed on your personal tax return. GENERAL COMPANIES In this standard form of partnership, all shareholders are equally liable for the company`s debts and liabilities. In addition, all partners can be involved in the management of the business.
Unless otherwise stated in the articles of association, each partner has the same rights of control and management of the company. Therefore, unanimous agreement of partners is required for all important measures. Note, however, that any commitment from a partner is legally binding on all partners, whether they have been informed or not. An overview of the two simplest forms of business organization: sole proprietorships and partnerships, as well as the pros and cons of either of these choices for your business. All proposed owners must contribute and accept this document to form a formal partnership. They should discuss, among other things, the percentage of ownership (p. e.g., 60-40 or 70-30), the responsibilities of the partner, the investment of the new partner, if applicable, and the dispute process, among others. You both need to agree on all the points in order to form the partnership. Then follow the steps above to form a partnership. There are no complicated start-up requirements for setting up a sole proprietorship.