While it can be exciting to enter a business partnership due to the benefits it can offer, you should take this decision seriously. Partnerships in business can be harmonious and mutually beneficial; however, they can also go sour and pose risks when things go wrong over time. You can avoid a bad dynamic by doing your homework. If you are considering forming a business partnership, a small business accountant in Roseville, California can help you understand the pros and cons of the partnership, guide you in making informed decisions, and understand the tax implications. Before you sign a contract and enter a partnership, below are important matters to think about:
Setting Clear Expectations
Before you enter a business partnership, take time to get to know your possible partner first. Determine who this party is, how it communicates, and how it does business. You must be transparent from the get-go. Do not hesitate to ask questions, so you can set fort and agree on expectations and goals before you sign contracts. Discussions about your communication style and preferences should be done. This includes talking about ways to make decisions and approaching conflicts.
Outlining How You Will Handle Business Finances
Every business wants to generate a profit, so you must outline how you will manage the finances of your business. While this can be hard, you need to talk through your idea regarding money from the start. Consider if you and your possible partner contribute personal income toward expanding or growing the business. Also, take into account if you will take a salary or reinvest in the business when it begins to generate a profit. Will you be okay taking on debt?
Deciding the Kind of Legal Partnership
When it comes to business partnerships, your options for your legal business structure include a general partnership, a limited liability partnership, or a limited partnership. Setting up a general partnership is easy. You do not need to file with your state and you don’t pay ongoing fees. But this offers little liability protection to you and your possible partner.
A limited partnership allows at least you or your partner to have unlimited liability. Limited liability for the other partner ensures their personal assets are not tied to the business. You may want to consider this partnership if you and your potential partner differ in your involvement in the business.
Lastly, a limited liability partnership limits the financial responsibility of every partner to the business. This offers both partners the most protection.
