Business Owner's Manual

Partnership

In a partnership, two or more persons agree to share ownership, management responsibilities, and liability for a business. In a general partnership, all partners have unlimited personal liability for all partnership debt. In a limited partnership, the general partners are personally liable for the partnership debt, while the limited partner has no such liability beyond his or her personal investment.

Advantages:

• Having partners means additional sources of capital and the ability to share ideas, skills, and responsibilities. Each general partner can act on behalf of the business.

• The partnership files an "informational return" but doesn't pay taxes — each partner reports his or her share of income or loss on quarterly tax returns, and losses are tax deductible.

• A general partnership is relatively easy to organize. (A limited partnership is more complex. It requires filing with the New York State Department of State and should not be formed without professional advice.)

Disadvantages:

• General partners have unlimited personal liability. Creditors can go after personal assets.

• Partnership ends on death of a general partner and a new agreement is required each time a partner joins or leaves the business.

• It is often difficult to disengage from an uncooperative partner.

• Partnerships (like sole proprietorships and limited liability companies) are subject to New York City's unincorporated business tax.

A partnership must file a notarized Certificate of Doing Business as a Partnership at the County Clerk's office. The procedure is the same as for filing a DBA. See additional comments under sole proprietorship.

To protect against future disputes, prepare a formal written partnership agreement setting out how much capital each partner will contribute, how the business will be managed, how responsibility and authority will be shared, and how the profits will be divided. You may also decide to get business life insurance to ensure the continuity of the business if a partner dies. For more information see Financing your business. You should consult an attorney for advice on a partnership agreement.