There are a few different types of partnerships:
In order for a partnership to exist, three criteria must exist:
1) there must be a business;
2) there must be a “view to a profit” (the purpose of the business must to be to make money); and
3) there must be an agreement to carry on business (this agreement may be written or oral).
Where all three criteria exist, so too does a partnership exist. A Partnership Agreement is not required in order for a Partnership to exist. Though, it is recommended that a Partnership Agreement be entered into where a Partnership intends on carrying on business.
There are certain characteristics that make a Partnership a unique form of business venture. For instance, a partnership, while it may be registered and have a registered business name, is not considered a separate legal entity. This is the single greatest difference between a partnership and a corporation.
There are a number of consequences of a partnership not being a separate legal entity. First, the liability of the partnership will, depending on the terms of the partnership, flow through to each partner individually. That means that each partner of the partnership may be held personally liable for the actions of the partnership as a whole.
Second, the profits of a partnership flow to each of the respective partners, in accordance with the terms of the partnership agreement. Whereas, the profits of a corporation flow to the corporation and depending on what the Directors of the company determine, may either stay within the company or pass to the shareholders/employees.
Third, dissolving a partnership is something that can be done without the approval of any government agency or Court. Because a partnership is not a separate legal entity, it can be dissolved without requiring the consent of a third-party agency. Mind you, dissolving a partnership will, in most cases, require the consent of all the partners. In other situations, unless otherwise stated in the partnership agreement, a partnership will be dissolved in the event of a death of one of the partners.
Partnerships are utilized by those individuals who wish to carry on business with other individuals, but who do not wish to incorporate a company and carry on business as a separate legal entity or enter into a Joint Venture Agreement. A Partnership Agreement details the relationship, rights and duties, by and between the partners, with respect to the carrying on of the business.
Nichols Law can assist you with the preparation and/or review of a Partnership Agreement, to ensure that your interests are protected.