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What are business partnerships and how are they formed?

This blog is a brief introduction into what business partnerships are, how they can be formed and how they can be terminated.

What is a business partnership, and what different types are there?

A partnership is a business formation consisting of two or more people who are co-owners and share profits. There are generally three main types of business partnerships. General partnerships equally divide the responsibilities of management and profits. Joint ventures are identical to general partnerships, but they exist for a defined period of time. Limited partnerships involve partners who have managerial positions, and also investment partners who do not involve themselves much with management.

How is a business partnership formed? It is not necessary to have anything formally in writing if you want to form a general partnership or joint venture. However, limited partnerships require a writing agreement.

What are the main rules that apply to partnerships?

If there is no written agreement, the rule is that partners must not draw a salary, and share equally both the profits and losses. Partners must also provide all financial information to the other partners.

How are partnerships terminated?

If there is no written agreement, a partnership is terminated if one of the partners wants to leave. To avoid the fragility of this scenario, a partnership should create a written agreement to make the termination process more structured.

Partnerships and the law surrounding them can vary widely depending on the circumstance. It is important to seek trusted legal guidance if you have any uncertainties about your case.

Source: Findlaw, "Partnership rules: FAQs," accessed July 14, 2017

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