How Do You Make a Successful Partnership Agreement?
The best way to make your partnership successful is to write everything down from the very beginning. This written document is called a business partnership agreement. Think of it as a rulebook for your company. It helps make sure all the partners are on the same page. While Georgia law does not say you must have a written agreement for a general partnership, it is a very, very smart idea.
If you do not have a written agreement, Georgia’s state laws will make the rules for you. Sometimes, those default rules are not what you and your partners would have wanted. Creating your own agreement lets you make the rules that are best for your specific business. A good lawyer for partnership agreement can help you create a document that covers everything you need.
So, what should go into this agreement? Here are some of the most important things to include:
Contributions
Who is putting what into the business? This can be money, property like a computer or a truck, or even just skill and time. Be specific.
Roles and Responsibilities
Who is in charge of what? One partner might be great at talking to customers, while another is good with numbers. Writing down each person’s job prevents confusion.
Sharing Profits and Losses
How will you split the money the business makes? Will it be 50/50, or will it be based on how much each person invested? Also, how will you share the losses if the business has a tough year?
Decision-Making
How will you make big decisions? Do all partners need to agree, or can a majority vote decide? What about small, day-to-day decisions?
Adding New Partners
What happens if you want to bring another person into the business? Your agreement should have steps for how to do that.
A Partner Leaving
What if a partner wants to leave the business, retires, or passes away? The agreement should explain how to buy out their share of the business so it can keep going.
Solving Disagreements
Partners will not always agree on everything. Your agreement should have a plan for how to handle arguments, such as using a third person to help you find a solution.
Putting all of this in writing protects your friendship and your business. It makes the future much clearer for everyone involved.
How Much Does It Cost To File for a Partnership in Georgia?
For a basic general partnership, it costs nothing to file with the state of Georgia. You do not have to fill out any special forms with the Georgia Secretary of State just to create your partnership. You can simply start your business. However, there are a few small costs you might run into.
First, if you want to name your business something other than the legal names of the partners, you have to register that name. This is called a “trade name” or a “fictitious name.” For example, if your names are Jane Smith and Tom Jones, but you want to call your business “Best Lawn Care,” you need to register that name. This usually involves a small fee paid to your local county clerk’s office.
Second, your business might need a business license to operate in your city or county. This depends on where your business is located and what kind of work you do. Most businesses need some kind of local license. You should check with your city hall or county government to see what is required. These licenses also have fees that you have to pay, usually every year.
So, while the partnership itself is free to create, there are often small, regular costs for licenses and registrations to legally run your business.
Who Has Control in a Partnership?
In a general partnership, everyone has equal control. Unless you write down something different in your partnership agreement, every partner gets an equal vote in managing the business.
Imagine you and two friends are partners. A big decision comes up, like whether to buy a new, expensive piece of equipment. With three partners, each of you gets one vote. If two of you vote yes, the decision passes. It does not matter if one partner put in more money or does more work. The default rule is one partner, one vote.
This is why a partnership agreement is so important. You might not want this system. Maybe one partner has much more experience and should have the final say on certain issues. Your agreement can set up any system you want.
For example, you could write in your agreement that:
- Day-to-day decisions can be made by any partner alone.
- Bigger decisions, like spending over $1,000, require a majority vote.
- The biggest decisions, like taking out a large loan or selling the business, require everyone to agree.
You can also give partners different levels of control based on their ownership percentage. A partner who owns 60% of the business could have more voting power than a partner who owns 40%.
Without an agreement, you are stuck with the “equal say” rule. By creating your own agreement, you get to decide what is fair for your unique business.
Can I Face Liability in a Partnership?
Yes. This is one of the most serious topics for partners to understand. In a general partnership, you can face unlimited personal liability. Let’s break down what that means.
“Liability” means being legally and financially responsible for something. If your business owes money, that is a liability. If your business causes harm to someone and gets sued, that is also a liability.
In a general partnership, the partners are “jointly and severally liable” for all business debts. This is a legal phrase, but the idea is simple and scary. It means that if the business cannot pay its bills, creditors (the people or companies you owe money to) can come after the personal assets of any partner for the full amount.
Here is an example. Let’s say your partnership takes out a $50,000 business loan. The business does not do well and cannot pay the loan back. The bank can sue both you and your partner. But they do not have to collect $25,000 from each of you. If you have money in your personal savings account and your partner does not, the bank can take the entire $50,000 from you. It would then be up to you to try and get your partner’s half from them, which can be difficult or impossible.
This means your personal belongings are at risk. Your car, your house, and your savings could be taken to pay for business debts. This also applies to lawsuits. If your partner makes a mistake that leads to a lawsuit, you are just as responsible for the damages as they are.
Because of this high risk, many people choose other types of business structures. Georgia law allows for partnerships that give you some protection. These include a Georgia limited partnership or a Limited Liability Partnership (LLP Georgia). In these types of partnerships, your personal assets may be protected from business debts. Setting up these more protective partnerships is more involved. You should always get a lawyer consultation with a Georgia business lawyer to understand the legal requirements of a partnership like an LLP. They can help you choose the best structure to keep your personal assets safe.
How Are Partnerships Taxed in Georgia?
Partnerships have a special tax status. The business itself does not pay income taxes. Instead, it is a “pass-through” entity.
Think of it like this: The money the business earns passes through the business to the partners. The partners then report their share of the income on their own personal tax returns. They pay taxes on that money at their individual income tax rate.
This is different from how a large company, called a corporation, is often taxed. Many corporations have to pay a corporate tax on their profits. Then, when they pay the owners, the owners have to pay income tax on that money, too. This is sometimes called “double taxation.” A partnership avoids this.
Here is a very important point to understand: You have to pay taxes on your share of the profit, even if you do not take the money out of the business.
For example, your two-person partnership earns a profit of $40,000 this year. Your share is $20,000. You and your partner decide to leave all the money in the business bank account to save up for future growth. Even though you did not put that $20,000 in your personal pocket, you still must report it as income on your tax return and pay taxes on it for this year. This can surprise many new business owners. A good accountant or a Georgia lawyer can help you plan for your taxes so you are not caught off guard.
How To Dissolve a Partnership in Georgia
Sometimes, a partnership needs to end. The legal term for this is “dissolution.” The process of a general partnership dissolution is about formally closing the business.
A partnership can be dissolved for many reasons:
- A partner decides to quit or retire.
- You set a specific end date in your partnership agreement, and that date has arrived.
- You started the partnership for one specific project, and the project is finished.
- A partner passes away.
- All partners agree to end the business.
- A court orders the partnership to be dissolved because of serious problems or illegal activity.
Once the decision is made to dissolve, the partnership does not just stop. It enters a “winding up” period. This is the process of closing everything down in an orderly way. During this time, the partners must:
- Finish any old business: You cannot just walk away from customer projects. You must complete any work you have already started.
- Pay all the debts: You must pay off all business loans, suppliers, and any other bills the partnership owes.
- Sell business assets: This involves selling company property, such as vehicles, tools, and office furniture.
- Distribute remaining money: After all the debts are paid, any money that is left is split among the partners according to the rules in the partnership agreement.
Having a partnership agreement that clearly explains how to dissolve the business is a huge help. It can make a difficult process much smoother and prevent arguments among the partners during a stressful time.
Do I Need a Georgia Lawyer To Form a Partnership?
A general partnership puts your personal assets at risk. A lawyer can explain other options, like an LLP or an LLC, that might be a much safer choice for you. A Georgia business lawyer can help you understand the pros and cons of each business type so you can make an informed choice.
Most importantly, a lawyer can help you draft a strong business partnership agreement. A well-written agreement is the best tool you have to prevent future fights with your partners. It makes sure everyone has the same expectations about money, work, and control. It provides a clear roadmap for how to handle problems when they come up.
Taking the time for a lawyer consultation at the beginning can save you from enormous stress, money, and legal trouble down the road. It helps you build your business on a solid foundation. If you are ready to start your business with a partner, the best first step is to speak with a legal professional.
LegalMatch can help you find the right Georgia lawyer for your business needs today.
