How to cover your bases legally when forming a partnership

As most people know a partnership is a business where two or more people are partners in running the business. Partnerships can be formed by a simple handshake or an oral agreement, but these are not recommended because if a disagreement does occur it can be hard to prove what the original agreement covered. The best idea to use if you are going to create a partnership is to write up a formal partnership agreement, this way there can be discrepancies in what was originally agreed upon. Unlike other forms of businesses you do not have to file any legal paperwork with the government but there are still some papers that must be filed.

Since there are no legal papers that need to be filed when forming a partnership it can get kind of tricky to cover your bases legally when forming a partnership. The best way to make sure all of your bases are covered is to hire a lawyer who specializes in small businesses. You can also do plenty of research with the Small Business Association and with the IRS to see what a partnership is legally responsible for. For example the partnership does not pay state or federal income taxes, but they must file an informational partnership tax return once a year. This form will show the profit or loss of the company and what is being claimed by each partner on their individual income tax returns.

Also legally all partners are responsible for any debt or obligations that the partnership incurs. Partners are not responsible for other partner's personal debt, but if the partner's creditors go after their share of the partnership then the business can be disrupted. Partners are also personally liable for any money damages that are awarded by the court that results from the negligence, fraud, or any other intentional bad acts that a partner performs while doing business for the partnership.

You best way to ensure that all of your bases are covered legally is to prepare a written partnership agreement. Here are some things that all partnership agreements should cover.
 Amount of equity invested by each partner
 Type of business
 How the profits and losses will be shared among the partners
 Each partners pay and types of compensation
 How assets will be distributed when the partnership is dissolved
 Under what circumstances you can make changes to the partnership
 Under what circumstances can the partnership be dissolved
 Dispute settlement clause
 What will happen to the partnership if a partner dies or can no longer work
 Restrictions of authority and expenditures
 Length of partnership

Preparing a written partnership can cover all of your legal bases because you can put everything that you feel needs to be covered into the agreement. This agreement then becomes a legally binding agreement. One thing to keep in mind is that regardless of the partnership agreement you are still personally liable for any debts or obligations made by the partnership.

Also by having a lawyer review your agreement or any other agreement you are going to enter into you can be sure that all of your bases are covered and that the agreement is in the best interests of your partnership. Some people think that if they go into business with a friend or relative they won't have to worry about covering their bases legally because of the personal relationship but it is in your businesses best interest to cover all your bases legally so that if disputes do arise you have written proof of what was originally intended.

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