To start an LLC with partners, you will first need to develop a partnership agreement for your limited liability company (LLC). Your partnership agreement will outline your LLC's management and structure and describe partner responsibilities. When forming an LLC, the owners of your company will get the benefits of owning a corporation without the tax drawbacks of the corporate structure. The main purpose of a business partnership agreement is to reduce the likelihood of disagreements by clearly outlining the LLC owners' responsibilities.
To prevent future problems, every partnership should develop a strong partnership agreement that all LLC members agree to. Your partnership agreement will function much like a corporation's Articles of Incorporation, and every party will be legally bound by the agreement. It's a good idea to write your partnership agreement before you open your business instead of after operations have begun.
A partnership agreement will clearly define the rules of the business partnership and make sure every partner understands important issues related to the company.
It's important to take your time when developing a partnership agreement. This process requires LLC members to closely examine their roles within the company, as well as consider what would happen if one of them passes away unexpectedly. With a formal agreement, partners will also be protected from each other, meaning one partner won't be able to take advantage of another.
When writing your LLC partnership agreement, you will start with some facts about your company, including:
Your agreement should also list every partner's obligations, which will usually be based on what they have contributed to the company. Your partnership agreement will also outline the partners' rights. You might want to include rules for how company decisions will be made and how partner disputes will be resolved. It's important that your partnership agreement include steps for dissolving the company, including how to dispose of assets and distribute remaining money to the partners.
Partnership agreements grant rights to the LLC partners, including to profits and ownership stakes. A partner's ownership stake is a representation of how much power they have in the company. While many partnerships provide equal ownership stakes, others give managing partners higher stakes and consultants or investors lower shares. You can distribute company profits by ownership stake or through another method agreed to by all partners.
When starting an LLC with partners, you need to take into account the amount of capital each founding partner will contribute. Your LLC partners can contribute buildings, cash, land, or other assets. After defining each partner's contributions, you must decide how you want to distribute operational responsibilities. Your goal should be to give each partner control of one section of the company.
Limited liability companies and partnerships are similar from a legal standpoint. For example, when an LLC pays income taxes, it does so as a partnership. However, LLCs and partnerships differ in important ways that you should consider when choosing a business structure, including:
When starting a new business, think very carefully about whether you will structure your business as an LLC or a partnership.
If you choose to form your business as a partnership, the two partnership structures are:
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