Starting a new business means creating a small business for most people. The average person lacks the financial resources to immediately hire hundreds of employees and set up locations around the country. At least at first, the business is likely to have a small workforce and a relatively simple management structure.
Many successful companies grow into larger, more complex organizations. These entities may benefit from organizing themselves as corporations. But that structure is not ideal for all small businesses, for a variety of reasons including how involved the process of incorporating can be.
Instead, many Illinois small businesses owners choose to organize as a partnership. As the U.S. Small Business Administration defines it, a partnership is a business in which two more people share ownership. The partners each contribute to the business in some way, such as investing their money, skill, property and/or labor. In return, they all share in the business’ profits or losses.
States typically provide for three different styles of partnership arrangements.
- General Partnerships. In a general partnership, the partners usually split the duties, profits and liability equally, though it is not necessary. If the percentages are uneven, the business must document those percentages in the partnership agreement.
- Limited Partnership. More complex than general partnerships, limited partnerships create a second tier of partnership. Limited partners have lower liability in case the business is sued, but they also have less input on management decisions.
- Joint Ventures. This is intended for projects that are to last for a limited period of time. If the partners later decide to continue as an ongoing business, they must refile.
People considering starting a new business who are unsure how to organize should consult with a business law attorney.
