Running a business can take it out of you. The demands never seem to wane, and in fact, only grow once the doors open. While your business plan was solid from day one, there have been some bumps along the road that you didn’t anticipate. When faced with certain situations, you wonder if bringing on a second to help might be the best choice for the business. When considering bringing on a business partner, there are a few things you may want to consider before pulling the trigger.
The Legalities of a Partnership
In business, there are several different ways you can legalize a partnership. The most common is a general partnership where two people co-own a company and share in the work, the profit and the loss. If your business starts to go south and creditors start knocking, they won’t stop at your business door. If you have or your business partners have personal assets, someone you owe money to can seize it under a partnership agreement. There is no legal protection or separation between personal and business property.
On the upside, a partnership is a great way to save money on business taxes. The IRS considers a partnership a “pass-through entity” meaning taxes aren’t collected. The cash received by the business passes through the proper channels and winds up in each partner’s bank account. While you will have to count it as income for your personal income tax, you do not have to pay business taxes on it. This process removes the “double dipping” of sorts that would occur if the IRS took its share out twice.
No Filings Required
If you do decide to start a business partnership with someone, there is nothing that needs to be filed with the secretary of state to get it done. You only need to have an agreement between the two of you (which should be drafted and notarized for your protection), and you can start the business. If you bring on a partner after your business is up and running, the same rules apply.
Having a second set of eyes to see the business through is never a bad idea. It is also beneficial to have someone else to invest the time and money necessary to keep the venture afloat. When considering a business partner, make sure you think about the implications long and short term.