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Is a partnership the right entity formation for my business?

People who start a business in New Jersey should take great care in deciding on what the entity formation should be. For many, a partnership is the way to go. However, there are certain considerations that should be accounted for when deciding to use a partnership. With a partnership, there is an unlimited liability for all debts between the partners. This means that the partners are personally responsible for those debts. A problem is that the debts can go beyond the investment. With a partnership, one of the partners dying or leaving will end the business. This is when it might be wise to think about a limited partnership.

A business should make certain that there is enough financing to build and maintain it. A partnership is an effective way to do that as there is more than one person who is trying to make it work. With a partnership, it can be beneficial to have partners who have differing areas of expertise. For example, if one partner is good at creating and the other is good at finance, this has the potential to be a solid partnership if they can work together effectively. It is not necessary for partners to be "friends" in the classic sense of the word - just a working relationship and common goals is often enough.

The law does not require that there be written Articles of Partnership, but people who decide to become partners would be wise to think about that to have the duties and requirements on paper. There must be a written agreement if there is to be sharing of profits and losses. This can avoid various problems that have been known to arise between partners. A verbal agreement can be interpreted differently and change as time passes and the business grows, stagnates or recedes.

Various issues must be considered with a partnership including the name of the business, how long the agreement will last, who has the authority and responsibility for certain areas, if the partners are general/limited or active/silent, how the profits and losses are divided, salaries, and much more. Regardless of the type of business that is being started, it is imperative to have the protection and guidance that an experienced law firm can provide. A legal professional can help with any size business start up and provide that help.

Source: nj.gov, "Guide to Doing Business in New Jersey -- Partnership, pages 14-15," accessed on Jan. 23, 2018

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