Partnerships — the Good, the Bad, the Ugly
You and your buddy have decided to start your own business and become partners. Good for you! Now what?
What’s so great about being partners? Well, I’ll tell you.
First, instead of operating a business on your own, there are two of you. You both share the business equally; no more, no less. Everything that concerns the business is split equally between the both of you.
Your business is generally easy to establish which means you will have low start-up costs. Awesome! Partnerships are very easy to set up and don’t require a lot of paperwork and you’re also not required to file your taxes using business tax forms. Your taxes simply pass to the business owners (you) and you include your share of profits on your individual tax return but you will probably end up paying additional taxes.
That all sounds great, but there have to be some disadvantages to having a partnership, right? Well of course.
Partnerships, unfortunately, mean you cannot make any business decisions without talking with your partner first. They are partial owners after all. This also means that you and your partner split any profits earned through your business.
Remember the whole “filing business taxes with your individual income” scenario? I should also add the fact that you may actually end up paying more in taxes. Think about it. Businesses typically pay lower rates than individuals, but since you’re filing as an individual instead of a business, you’re paying more in taxes at the end.
Partnerships can be great, as long as you choose the right partner. You need to know that you can both work together as a team, make decisions as a team, and have the same goals as a team. Truly take the time to make a decision on how you want to operate your business. But remember, you can always change the way your business operates later down the line if your partnership just isn’t working out the way you had hoped.
