Thinking about starting a business with a friend? Make sure you consider forming a general partnership.
General Partnerships can be started with or without a written agreement. Given that two or more people work together towards generating a profit by selling products or services then a general partnership exists until a legal corporation of some sort is formed.
Don’t Get Tricked – Agreeing to be a Partner but Not Liable for Business Debts – Impossible
All partners in a general partnership are personally liable for all business debts. If you have a signed partner agreement that you are not personally taking on personal risk for business debts (insinuating that the other partner has agreed to take on that risk) that agreement may stand on firm ground between the two of you but not in the real world. By that I mean that creditors can go after all partners for the business debt and liabilities that are owed. That means creditors can take all your belongings including personal bank accounts, your home, and even your car.
This will Help – General Partnership taxes
The “Pass Through Taxation” applies to individuals who are owners of a general partnership business. This means that you are taxed at whatever your personal tax rate may be. This is just as it is with a sole proprietor.
As an owner of a general partnership you will have to pay the ‘Self Employment’ tax which is just the full amount of the medicare and social security tax that everyone pays. The difference is that as an employee you only pay half. The employer will pay the other half. Being self-employed you must pay the entire amount.
No partner? consider starting a sole proprietorship. No matter what you do make sure you explore all your options. This means you need to continue your research (which obviously you are doing by reading this helpful finance blog) on the different business form options. You may find your best choice with or without a partner is to start an LLC.