Partnerships 101: How to Start a Business With a Partner

By Belle Wong
The Hartford Small Biz Ahead
Originally Published: March 27, 2024

Think of partnerships as the business world’s version of marriage. Just like a relationship, a business partnership requires more than an initial connection. You also need mutual understanding, collaborative agreement and strategies to handle challenges that pop up.

Going into business with a partner? We’ll break down the mechanics of successful partnerships, including how to select the right type of partnership for your co-venture, laying down the legal framework and cultivating an environment for collaborative success.

How to Choose the Right Partnership Structure

Finding the right partner (or partners) for your venture is just the first step. You then need to choose a suitable business structure for your partnership. Although structures differ slightly across states, each type of partnership has a distinct framework that will shape the ways you and your partners collaborate, make decisions and face challenges.

General Partnership

A general partnership is the simplest form of business partnership. Each partner shares equally in the management, profits and risks of the business. General partnerships are a common choice for many business co-owners: They’re easy to set up and offer a simple, direct approach to running a partnership.

But there is a downside: Partners in a general partnership bear joint and several liability for the business’s obligations. This means they can each be held responsible for the entire debt of the partnership; not just their own share. Because the liability is unlimited, each partner’s personal assets—including savings and property—are potentially at risk.

Limited Partnership

A limited partnership is a more complex structure than the general partnership. It involves two types of partners:

• General partners. General partners oversee the day-to-day operations and management of the business.
• Limited partners. A limited partner contributes capital and receives profits but isn’t involved in daily management.

Much like in a general partnership, general partners in a limited partnership have unlimited liability for all the business’s debts and obligations. Limited partners, on the other hand, are only liable up to the amount they’ve invested, and their liability is limited beyond this amount.

This limited liability protection, contingent on the partner not being involved in business management, offers limited partners a safeguard for their personal assets while allowing them to benefit from the partnership’s profits. Meanwhile, general partners benefit from a limited partnership structure because it lets them attract capital while still retaining control over operations.

Limited Liability Partnerships

Unlike general and limited partnerships, a limited liability partnership (LLP) is designed to…[MORE]

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To read the entire article by Belle Wong at The Hartford Small Biz Ahead website, visit: Partnerships 101: How to Start a Business With a Partner