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Whatever type of business enterprise you are about to embark upon, there are a number of common issues to consider. What budget do you have to work with, how much capital it will take, which marketing outlets you will try - these are a few of the necessary components of planning your new startup business plan and its early operations.
You will also need to choose a legal form of entity under which you will do business. Or, more precisely, if you do not make the choice actively, you will default to the form of business that fits your activity, either a sole proprietorship, or a business partnership, depending on whether any other person or legal entity has a financial interest at risk in the business.
The De Facto Partnership
The issue of forming a legal, business partnership - when you may not necessarily have intended to - is one of the primary reasons for carefully, and intentionally choosing the form of business you want, and not letting someone else choose it for you.
Imagine going to an expo of some sort with a neighbor, sibling, boyfriend or girlfriend, and buying a large quantity of valuable goods. You split the cost, drive them away and store them in his or her garage for several months, both of you using them as you have need.
Now if you take any action to resell any of these goods or to use them to earn a profit - guess what? There is a very good probability you've created a general partnership agreement- possibly without ever intending to. Who hasn't done something then that could constitute partnership? Hardly anyone, I'm sure.
Tax Liability in a Partnership
Most often, an informal partnership agreements between friends is not a big deal. Friends remain friends or they part company amicably, or at least without resorting to the courtroom to settle their differences. But did you realize there may be serious tax consequences to the creation of a partnership as well?
The IRS requires the filing of a partnerships taxation return even on a small sum of income. Each year literally thousands of partnership returns go unfiled. But yet, it is one of the easiest areas for the IRS to assess unpaid taxes. All it takes is one partner to reveal the partnership interest, and all of the others are jointly liable for the tax.
These days it has become so easy to incorporate your own business when starting a new business, operate as an LLC, or other incorporated entity, and to limit your exposure to liabilities on all sides of your business - it is quite worthwhile to investigate these options carefully with a business law lawyer.
Learn more about Common Business Structures and Partnerships