One of the initial decisions you will make as a new business owner is the entity structure. If you and at least one other person are co-owners and intend to make a profit, a partnership may be the perfect entity for you. California does not require you to file formal paperwork to start your business, but you and your co-owners should adopt a written agreement that speaks to how you will run the business.
A contract between the business owners is crucial because it can help resolve disagreements that inevitably arise when multiple owners have differing opinions. At Sparks Law, our skilled attorneys are experienced in drafting these documents for new business owners. Let a California partnership agreements lawyer secure your company’s success and help prevent costly disputes down the line.
Corporations file Articles of Incorporation and limited liability companies file Articles of Organization with the California Secretary of State. Although no such filing is required for partnerships, partners must file a Partnership Return of Income (Form 565) if they are doing business in California or have income from California sources.
Partners are not required to file a partnership agreement, but it is highly recommended that they work with a nearby attorney to draft a written contract. This is crucial in laying out how to run the business and handle future conflicts.
Owners must unanimously adopt a partnership agreement. This document binds them to terms they all agree on, including how they will support the business as it grows. A partnership agreement should be specific and address points such as:
Partnership agreements are tailored to the business, which can be a general or limited partnership. When an experienced attorney drafts a written partnership agreement, partners will have a chance to discuss their concerns and ask questions. The definitive document should reflect the wishes of all owners.
Partnerships do not pay state and federal taxes. Profits and losses are allocated to owners who report them on personal returns. This pass-through tax status avoids double taxation, and this status applies to general (GP) or limited partnerships (LP). A California partnership agreements attorney could further explain the benefits and drawbacks of this status.
General partnership owners are responsible for the company’s debts and personally liable for any lawsuits filed against it, even if only one partner incurred the debt or acted in bad faith. General partners manage the business and can bind the firm under California law.
A partnership agreement is crucial because it can set parameters for these actions. For instance, the agreement could specify that no one partner can bind the business for any amount more than $5,000 without the consent of all the partners. Our skilled California lawyers are familiar with these potential problems and can address them in a partnership agreement.
Limited partnerships include general partners who manage the business and limited partners who contribute initial capital but have no management role. Limited partners are only responsible for the business debt or lawsuit settlements up to the value of their capital contributions.
Because limited partners have no say in management, they can best protect their investments with a partnership agreement that explains what to expect from general partners.
Because you will be working with at least one other person in your new partnership, it is essential that all owners know their role and what is expected of others. Future misunderstandings can arise when memory fails, and decisions you thought were unanimous may be contested if nothing is in writing.
You should have a clear roadmap for the future of your business. At Sparks Law, a California partnership agreements lawyer can help create a contract that establishes the owners’ wishes and secures your company’s success. Call today and learn how we could help you.