Business Partnerships: Choosing the Right Structure

This blog is part 2 of a series exploring various business structures and what makes each structure unique. Specifically, it will examine the characteristics of business partnerships. Sole proprietorships, corporations, limited liability companies, and joint ventures are covered in separate blogs.

As an owner, you may have wondered at some point if the business structure currently in place was the right choice. Those looking to start a business have probably wondered about which structure would best fit their needs as well. Determining the right structure for your circumstances can lead to better performance and higher returns down the line. For example, shifting to a more complex framework than your business’s current structure could allow you to take advantage of certain legal protections or tax options. It could also help generate a higher collection agency valuation, depending on the state of your business’ operations. Ultimately, the decision depends on the type of business you are running, its size, and your goals for the business.

Business Partnerships

This is the simplest structure for two or more people who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. There are two primary categories of business partnerships: general and limited.[1]

General business partnerships offer an equal division of responsibility and liability between the partners that own the business. They are similar to sole proprietorships in that they are relatively simple to form – no fees or paperwork required – and allow their owners total operation control. In addition, the partners are personally liable for all obligations and debts owed by the business.

Limited business partnerships, on the other hand, is when ownership is split between general partners and limited partners. While the general partners manage operations and assume full liability for financial obligations, the limited partners are only responsible for investing capital into the business and cannot be held liable for any debts beyond what they’ve invested. Limited partnerships are costlier to start than their general counterparts, as they require filing with the relevant state agency for a fee.

Like sole proprietorships, business partnerships are pass-through entities since they do not pay any income tax at the partnership level. Each partner reports his share of the partnership net profit or loss on his personal tax return. Like sole proprietors, business partners generally need to make quarterly estimated tax payments if they expect to make a profit.

Certain business structures may be more appealing than others in various situations. Making the determination of whether your business’s current structure best fits your circumstances and goals is an important element of strategic planning. However, this can be a complex, multifaceted process.

Fortunately, Kaulkin Ginsberg can help you navigate those choppy waters. We have worked with small, mid-sized, and large privately-owned companies, Fortune 500 corporations, and financial investment firms on their mergers and acquisition (M&A) strategies for thirty years. Whether you’re seeking professional sell-side representation, assistance forming a business partnership or joint venture, a transaction assessment, or a collection agency valuation, Kaulkin Ginsberg will guide you through the process. For more information, or to schedule a confidential discussion of your business goals, contact us here or at hq@kaulkin.com.

Works Cited

[1] Tarver, Evan. “Limited Partnership (LP).” Investopedia, 8 Mar. 2021, https://www.investopedia.com/terms/l/limitedpartnership.asp.

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