In its most basic form, a partnership exists in a situation in which two or more people enter into an agreement to carry on a business for profit. Unlike some other forms of business, a partnership can exist either by the express design of the partners or where the individuals involved hold themselves out to be partners, even if they have not officially entered into a partnership agreement.
A partnership gives the partners certain rights and responsibilities regarding the partnership itself and one another. However, these rights and responsibilities have certain drawbacks as well. Individuals looking to form a new business entity should discuss their plans with a Tennessee partnership attorney to determine if a partnership is right for their situation and goals.
Rights And Responsibilities Of Partners
A partnership is a relatively easy business entity to form. In fact, in some cases, a partnership can be found to exist even if the “partners” themselves did not intend to formally create a partnership. A partnership also offers the partners a great deal of flexibility in deciding how they want to operate the partnership and share profits and losses.
Disadvantages Of A Partnership
One of the chief disadvantages of a partnership is that the partners themselves are personally liable for the partnership’s debts and obligations. If the partnership runs into financial trouble, for example, and does not have the assets it needs to meet its liabilities, the creditor can sue not only the partnership but also the partners themselves individually.
Another disadvantage of a partnership is that each partner is presumed to have the ability to bind the partnership and act on behalf of the partnership. Thus, a partner can enter into a binding contract with another person without actually having received the other partner’s consent. If the contract is not honored, both the partnership and all the partners can be held responsible for paying the obligation.
Advantages Of A Partnership
Aside from the flexibility and informality of a partnership, another great advantage is that profits are taxed once as part of the partner’s income. In other words, when the partnership makes a profit and the partners realize this profit, they must merely report this income on their own personal income tax return and pay the appropriate individual income tax. This can result in substantial tax savings to the partners compared to corporations’ profits (which can be taxed twice).
Contact A Partnership Formation Attorney For Help
If you are looking to start a partnership in the Memphis area, consult with the legal team at Douglass & Runger. We can assist you in evaluating whether a partnership is the best business entity for your new venture and, if so, advise you on how to best structure your new entity to protect its future as well as your own.
