Selecting your business structure is one of the most important decisions you will make. You should take the time to consider all of your options before selecting a business structure.
There are several types of partnerships available to business owners. A partnership is created anytime two or more people come together to conduct business for profit. Partnerships are governed by partnership agreements and each partner is taxed on his or own share of the income. The partnership agreement controls every aspect of the business according to its terms unless it conflicts with a few statutes that the state requires. One such statute requires all partners have access to the partnerships books and records.
A general partnership is the default if two or more people enter into business together with no formation documents. A general partnership can be created by design as well. This is the easiest form of partnership to create and carries the greatest risk to its members. All general partners are liable for the debts and liabilities of the partnership. This liability includes responsibility for the wrongful acts of other partners.
A limited partnership (LP) has general partners and limited partners. The general partner is subject to all the risks of partners in a general partnership unless the general partner is a corporation of limited liability company. The limited partner is an investment partner only and cannot participate in the management of the partnership.
A limited liability partnership (LLP) is not really a separate type of partnership it is a subset of the LP. An LLP offers some liability protection to the partners from the wrongful acts of the other partners. The LLP must file annually with the state to maintain this status. An LLP is required to carry specific amounts of liability insurance. These partnerships must include one of the following or its abbreviation in the name; registered limited liability partnership (RLLP) or limited liability partnership (LLP). All partners in an LLP can participate in the management of the partnership.
When beginning any business it is important to be familiar with any state or local requirements for the business you intend to run. Are there professional license requirements that exist? Cosmetologists, hairdressers or real estate agent are just a few of the businesses that have licensing requirements. You will also need to check with the city for any permits that are required. For example, a restaurant will need a permit from the local health department and a liquor license if they offer alcoholic beverages.
If the business will be involved in transactions that are subject to sales tax the seller must obtain a sales and use tax permit. The margin tax became law effective 1/1/08 replacing the franchise tax. With the margin tax there is a presumption of taxability. Sole proprietorships, general partnerships owned by natural persons, and certain non-profit and investment entities are excluded from the tax. The margin tax is a tax on the gross profit margin of the business.
Law Offices of Debbie J. Cunningham
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