Starting an Online Business All-in-One For Dummies®, 3rd Edition

Sharing the Load with a Partnership

In some ways, a general partnership is similar to a sole proprietorship: It's relatively simple and inexpensive to form. Issues of liability and taxes reside fully with its owners. The primary difference with a partnership is that it allows you to have multiple owners.

Although the terms of this type of partnership can be based on a verbal agreement, you should spell out the conditions in writing, for two reasons:

• Dispute resolution: Having the specific details of your original agreement in writing is handy if a dispute arises between you and your partner (or partners).
• Proof of partnership: If something happens and a written document cannot be produced, you and your partners are assumed to share equally in all aspects of the business. Proving otherwise in a court of law, or to the IRS, could prove difficult.

When you define your partnership, the basic agreement should address these areas:

• Structure: Shows what percentage of the company is owned by each partner
• Control: Defines which partner is responsible for which part of the daily management of the company
• Profits: Detail the division of profits and losses and the timeframe for distributing profits to the partners

A partnership arrangement brings up certain questions that you must consider at the beginning of a partnership:

• How much money and time will each partner contribute, and how will decisions for the company be made?
• What happens if one partner stops contributing, can no longer ...