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2TORIAL
Learn2 Choose a Business Entity (continued)
Step 7: Understand partnerships

General partnerships are like sole proprietorships, except ownership and responsibility are shared among two or more people. A partnership has the disadvantage of unlimited liability for all the general partners, which can lead to the loss of personal assets and make large-scale capital raising difficult. On the other hand, partnerships avoid corporate paperwork, and profits are not subject to double taxation.

While at least one "general" partner must assume unlimited liability, it's possible to sign on "limited" partners. A limited partner cannot be liable for more than his or her original investment. However, the sale of a limited partnership interest is usually considered a "security," just like a share of stock, so certain security regulations must be addressed. This requires the expertise of a securities lawyer.

If you decide to work with partners, you generally have to forego some measure of control, as well as a share in the profits. This opens up the potential for conflict, so be clear how you'll divide investments, profits, potential liabilities, and decision-making powers.

In short, be sure you have a clear agreement that complies with the laws in your state, including a system to resolve potential disputes, before working with partners. A lawyer should be consulted for such an agreement. That said, partners can bring two essential ingredients to your business:

Capital. Partners can provide money to start or expand your business. Further, additional investors are generally more willing to jump aboard a partnership than a sole proprietorship, since risks and decision-making powers are often shared.

Expertise. Partners may know a part of your business even better than you. By combining talents and adding more input to the decision-making process, your business could be more successful than if you try to go it alone.




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2TORIAL STEPS
Introduction
Step 1: Understand your options
Step 2: Understand the advantages of incorporation
Step 3: Understand the disadvantages of incorporation
Step 4: Consider the S corporation
Step 5: Understand LLCs
Step 6: Understand sole proprietorships
Step 7: Understand partnerships

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