Like a Sole Proprietorship, a Partnership “springs into being” the moment two or more people engage in business to make money.

That’s it.

Handshake optional.

All that’s necessary is that the parties agree to do business together. It does not have to be in writing. An oral agreement will suffice. Easy peasy. Right?

NOT SO FAST…

Just because an oral agreement is enough to form a legally binding contract…

Don’t do it! 

Get it in writing.

Get it in writing.

Get it in writing.

Because, the bottom line is, you may be agreeing to more than you actually bargained for. To wit:

“The association of two or more persons to carry on as co-owners of a business for profit forms a partnership, whether or not the persons intend to form a partnership.”
United States Uniform Partnership Act

So, despite the simplicity of organization, you could be entering your worst nightmare, especially if you don’t have the protection of a limited or limited liability partnership, and more especially if you don’t have the partnership agreement details spelled out in writing.

Have I mentioned that you must get it in writing?

While it is possible to draft your own partnership agreement, it’s wise to get the help of an attorney, especially if the agreement is complex. Also, partnership law varies by state, so you’ll want to have your agreement reviewed by an attorney who is familiar with the laws of your jurisdiction.

OVERVIEW OF PARTNERSHIPS

General Partnership: As described above, a regular old partnership (much like a regular old Sole Proprietorship), the kind that “springs into being” as soon as you start doing business with one or more persons, is known as a General Partnership, by default. All partners share equally in the management of the partnership, the distribution of profits, and in the business’s debts and liabilities, unless those terms are spelled out in a partnership agreement. In other words, each of the partners bears responsibility for the actions of other partner(s), no matter who is at fault. 

Limited Partnership: This is an entirely different beast and you should seriously consider hiring a lawyer to help you with this one. Do not do it yourself. Limited partners have liability protection in much the same way as shareholders of a corporation. The Limited Partnership consists of the managing partners (often the founders) with investors as the “limited partners.” Most states require formal registration of a Limited Partnership.  

Limited Liability Partnership:  Unlike a General Partnership, a limited liability partnership offers liability protection against the actions of other partners in the company. You are still liable for your own actions, however. LLP partnerships are often formed by licensed professionals such as doctors, lawyers, accounts, etc.

This is a very general overview of how how partnerships work. Be careful when entering into any business arrangement with someone, especially when you could be agreeing to more than you intended to. It’s wise to seek the advice of an attorney familiar with the laws of your jurisdiction. The cost of hiring an attorney will vary, depending on the complexity of the business. Expect to spend anywhere from $500 to $1000 or more in legal fees.

Remember this: Owners of a General Partnership are subject to unlimited personal liability for the debts, losses and liabilities of the business.