Partnership at Will: Everything You Need to Know
A partnership at will is a useful and rather simple way to form a business. If you have other individuals that you wish to work with to create a company, this is a simplified way to do so.3 min read
2. What is the Difference Between a Partnership and a Joint Venture?
3. Is a Partnership Agreement Good Enough for My LLC?
4. How are Partnerships Created?
5. How Does a Partnership End?
A partnership at will is a useful and rather simple way to form a business. If you have other individuals that you wish to work with to create a company, this is a simplified way to do so.
What is a Partnership?
A partnership is a type of business structure where two or more people operate and manage a business with the goal to make a profit. Every partner will share a fixed amount of the partnership’s losses and profits.
Based on the partnership type, every partner can be personally liable for the obligations of the business.
One significant benefit of partnerships is the fact that the income is taxed only once. It will flow through to all the partners who are then taxed on their own tax returns. This is different than a corporation that is taxed twice. It is first taxed as a corporate entity and then at the shareholder level.
What is the Difference Between a Partnership and a Joint Venture?
A joint venture is different from a partnership in that a joint venture is limited in scope to one project or with a limitation of time frame. Also, most members of a joint venture will all share the burden of expenses while profits are managed by every member.
For instance, two companies that are related could work together in a joint venture for the purpose of research and development of a product. Once the product is finished, all members will take the product that was created to their own marketplace and sell it for their own profit. Each member does not share the profits of other members, but will instead benefit from their own effort to exploit and market the product. This is different from a partnership, in which partners share the cost and profits.
There could be some tax benefits based on your jurisdiction for joint ventures over partnerships.
Is a Partnership Agreement Good Enough for My LLC?
A partnership agreement is not going to be good enough for your LLC. In a general partnership, all partners will be liable for the debts of the businesses. If there are one or more partners that cannot pay for his or her obligations of the business, the rest of the partners have to pick up the slack. With regard to an LLC, each member will have limited liability and will have protection like shareholders would in a corporation.
Typically, an LLC will not want to create any misleading documents in which clients and other associates in the business will rely on the liability aspect of the agreement within the partnership. If any issues were to happen with regard to payment of obligations, that reliance could be used in a court case that will defeat the liability protection provided by an LLC.
How are Partnerships Created?
· A partnership starts with a contract. Although there are not always formal contracts in place in many partnerships, a court could find that a partnership is in existence based on the parameters of the relationship of the parties.
· The terms of the partnership will need to be included in the partnership contract.
· If there is no written contract and something happens to cause the breakdown of the partnership, the courts will have to then decide what the terms are. This may not be the result that parties to the partnership would prefer.
How Does a Partnership End?
A partnership ends when all parties agree to end the business at a certain time or upon the completion of specific jobs. In some places, partnerships can end with bankruptcy or the death of a partner unless stated otherwise in the partnership agreement.
Unless it is not allowed in the agreement, the partners can provide a written submission to the rest of the partners to be withdrawn from the partnership. The partnership agreement should provide protection for the remaining members of the partnership if one withdraws.
If voluntarily withdrawing as a partner offends the terms of the partnership agreement, the partner withdrawing could be liable for the damages, if any, that occur to the other partners.
If you need help with forming a partnership, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.