Understanding partnership agreement between two limited companies is important if you want to start a business with someone else. When two people decide they want to start a business together, this is known as a partnership. The profits and losses of a partnership are split between the partners. Most times, the partners who own the company will have an equal split regarding its management.

Even though you do not have to have any type of legal documents to officially start a partnership, it is recommended that you create a partnership agreement. This agreement will outline the intricacies of the partnership, including how it is to be managed, how the profits will be distributed, and how it can be dissolved if need be.

How Many Partners can a Partnership Have?

A partnership can have up to 20 partners. If you start a company with people and there are more than 20 partners, you will need to register it as a company.

Pros and Cons of a Partnership

When you form a partnership, this gives you the ability to raise capital. Please be aware that a partnership is not its own separate entity. This means any expenses and debts accrued by the partnership will be the responsibility of the partners. If need be, the partners' personal assets can be touched to pay back any unpaid debts. You also need to note that you can be held liable for the actions of your partners.

What Is a General Partnership?

If you were to form a general partnership, this means that each partner is going to be held responsible for the debts and liabilities of the company. Furthermore, it also means that each partner has the potential to be held liable for the actions of the other partners.

If you want to set up a partnership, the process is fairly easy and straightforward, especially when compared to forming a company. The internal structure is very flexible as well.

In regards to the maintenance of a partnership, it is usually much simpler than that of a company. You will have fewer statutory controls to abide by. For example, you don't have to register the partnership agreement that you and your partners enter into. Additionally, when it comes to taxes, you don't have to file a return. Instead, you will claim the income on your personal taxes.

A major advantage that general partnerships have is the ability to recruit and retain some of today's top employees by offering them the option of becoming a partner. There's also the advantage of being able to raise capital.

Benefits of Being a Limited Partner

When you create a limited partnership, this means you have general and limited partners. A limited partner is limited in regards to the liability he has at stake. For example, he may make financial investments but does not have any type of say so regarding the managerial aspects of the company. More so, the limited partner is not held responsible for any debts that the partnership acquires. If you become a limited partner, you should know that you can be replaced and this replacement can take place without the company having to dissolve.

What Is a Joint Venture?

A joint venture is usually created when partners want to business with one another on a short-term basis. The advantage of establishing a joint venture is to gain access to a new market. A joint venture can structure itself as a:

  • Partnership.
  • Limited Partnership.
  • Corporation.

The joint venture itself will be treated as its own entity. The laws that will govern a joint venture are going to be based on the scope of the partnership as well as the type of structure that the joint venture chooses to incorporate itself as.

When you create a joint venture agreement, it is going to outline the duties of each partner. It cannot, however, be used to outline which duties are being eliminated. For example, it is against the law for a partnership agreement to eliminate one of the partner's responsibility to cover debts accrued by the partnership. The only way to do this is to become a limited partner.
