Stated simply, a partnership is a business is owned by two or more people. All partners are required to contribute “to all aspects of the business – including money, property, labor or skill.” In return for all of this, they each share in all of the business profits and losses.
Although partnerships are not legally required to draft binding partnership agreements, it's always considered wisest to only do business if you have one. They provide the best way to resolve how all profits will be divided; debts will be handled; partnership disputes must be resolved; and how all ownership changes must be handled. Finally, they should also fully address the exact steps that must be taken when the partnership will need to be completely terminated.
The Main Types of Partnerships
There are three basic types of partnerships. Here are some general facts about each type. In the state of Georgia, all partnerships are governed by the Uniform Partnership Act (UPA).
General partnerships. Many professionals prefer this type of structure because it provides that all profits, management tasks, and liabilities will usually be divided equally among the partners. However, if the parties prefer to have their profits divided up on an unequal basis, a partnership agreement must be drawn up to fully document this unequal distribution;
Limited partnerships. These are considered to be more “complex” than general partnerships. One main reason for this is that “limited partnerships allow partners to have limited liability as well as limited input with management decisions.” These limitations are directly related to “each partner’s investment percentage.” In most cases, a partner in an LLP is not personally liable for all partnership actions -- just those that he or she personally committed. Lawyers, accountants and architects are among the groups that most frequently choose to form LLP's;
Joint ventures. These are basically general partnerships but they are usually expressly established for limited time periods tied to one specific project. However, to have a joint venture recognize by the state as a general partnership, all filing requirements for partnerships must be strictly followed.
General Filing Requirements
To be legally recognized as a partnership, you must meet all of the pertinent requirements of the Georgia Secretary of State’s Office. You’ll be required to choose an approved name – often composed of the names of each partner. If you choose a different type of name for your partnership, you'll probably be asked to file a “factitious name (also known as an assumed name, trade name, or DBA name -- short for ‘doing business as.’”)
After you’ve properly registered your partnership, you must then be sure to obtain all required business licenses and permits. You can use the Small Business Administration’s Internet research tool (“click here”) to find out which types of permits or licenses pertain to your type of business.
Other Responsibilities of Partnerships
Your partnership must timely pay all required annual taxes and also properly pay off the partnership’s business debts. You must also be sure to obtain a tax ID number. Keep in mind that the partnership will normally also be required to pay: employment taxes, annual return of income taxes, and excise taxes.
Individual partners are also responsible to pay their own general income taxes, self-employment taxes, and any “estimated” taxes that may be due. Be sure to consult the IRS guide to partnerships for further information.
To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today. You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.