If you want to establish a business with someone else, forming a partnership is typically the best option. You may have a family member or close friend who shares your idea for launching a business and wishes to partner with you.

It's essential to grasp what it means to start a business partnership before you start picturing how you and your co-founder plan to take on the world with your venture. Prioritize the following essential areas:

1. Choosing a framework for a business partnership.

2. Creating a partnership agreement in writing.

3. Obtaining a federal tax identification number.

Let us go over what each of these terms entails in terms of running a successful relationship.

  • Choosing a framework for a business partnership

You may be wondering to hear that you and your partner have various partnership structure alternatives if you decide to join a partnership. It's comparable to founding an LLC, where you can choose between forming a single-member, member-managed, or manager-managed LLC.

There are four common forms of partnerships now in use. Let's go over each one one by one.

General partnership: A general partnership is a common type of partnership. Two or more partners form a partnership and agree on how they will run and conduct their business. The agreement permits the partners to split profits, liabilities, and management responsibilities equally. As a result, all partners in the partnership are treated equally and have similar responsibilities.

Joint venture partnership: This is a one-time collaboration, and it is made up of partners that want to get their firm to a certain point. The partnership ends when they reach that phase or cycle. Speeding up particular business procedures or completing a business growth phase are two examples of when forming a joint venture partnership may be beneficial.

Silent partnership: Not everyone in a partnership wants to be the public face of their company. A quiet partnership permits one of the business partners to be less involved. This partner will supply funds to the company but will have less involvement in its management and oversight. The other partner(s) will take on the silent partner's responsibilities in addition to their own and split them evenly among the other partners.

Limited liability partnership (LLP): specific professions like doctors, dentists, and accountants licensed by states will form LLP. This is a particular structure for licensed these licensed professions. It is crucial to protect partners from consequences from another partner's actions, such as malpractice or negligence.

Meet with your business partner now that you know which partnership models are available. Talk about which choice is the most excellent fit for your company. Then, as a group, make a decision. If you and your partner are still undecided about what to do next, visit a legal professional to ask any remaining questions and receive the required advice.

  • Creating a partnership agreement in writing

It'll be time to establish a written partnership agreement once you've decided on a partnership arrangement.

A written agreement is present in most entity creations, and corporations develop corporate bylaws, while LLCs draft LLC operating agreements. A written partnership agreement spells forth essential elements, such as who governs the company and how it should be run.

Following few additional areas a partnership agreement that needs to cover:

Term: This refers to the startup's official beginning date. The term of a partnership comprises the day, month, and year that the company has been in operation.

Responsibilities and Roles: This section explains each partner's role in the company and their daily activities.

Capital: Each partner contributes a portion of the capital they intend to put into the partnership. You can also include information on the bank account where the money is kept and how partners are paid.

This section should also include the terms of each partner's profits and losses.

Acceptance of a partner: Do you intend to bring on a new partner? For the admissions procedure, instructions will need to be written.

Withdrawal of a partner: Some partners opt to leave a partnership on their own accord, and others may withdraw unwillingly for various reasons. A partnership's following steps for partners who withdraw or pass away should be outlined in the same way for new partners.

Review the draught with your partner once you've completed a written partnership agreement (s). Make any necessary changes.

  • Obtaining a federal tax identification number

If you don't already have one, now is the time to apply for a federal tax ID, commonly known as an employer identification number or EIN.

The IRS issues businesses with an EIN, which is a nine-digit number, and it works to locate and track the tax accounts of employers. When filling out business documentation, you can also use an EIN instead of a Social Security Number (SSN).

For this reason, having an EIN is essential in a partnership. Most partnerships consist of two or more people, which makes using a partner's SSN on business documentation impossible. You may, however, use the EIN on legal documents and other partnership documentation once you have a federal tax ID.

Are written partnership agreements and business plans the same thing?

It's important to remember that a written partnership agreement isn't the same as a business strategy. A business plan looks ahead to the startup's future and the goals it wants to achieve. A signed partnership agreement ensures that all partners can work together to manage the firm efficiently.

Assume you want to start a company with your best buddy or closest confidante. Even if you've always gotten along, it's likely that an issue could arise or that there will be a quarrel between partners.

As a result, in business, it never hurts to be prepared. A formal partnership agreement outlines what each partner contributes to the organization, clarifies what each person does, and works to safeguard the partnership.