Business Formations & Incorporations: Sole Proprietorships & Partnerships

Starting your business through Sole Proprietorships or General Partnerships are some of the easiest business entities to form.  However, both of these business entities come with a serious drawback – being that the business owner has no protection from liabilities that arise from the operations of the business.  This means that if you are sued, or the business goes into debt, the business owner can be held personally liable for those debts.  There are different types of partnerships however, including limited partnerships and limited liability partnerships that can offer variable levels of liability protection.

Sole Proprietorships

A Sole Proprietor is an individual that owns the business by himself/herself, and has total control of the business.  This means that the business owner is receives all of the profits, but is responsible for all the taxes and liabilities.  All that is required for a business owner to go into business as a Sole Proprietor is to apply for a business license and file a fictitious name permit (if you are using a name other than the business owner’s name).  It is important to remain careful when operating a business as a Sole Proprietor because California is a very employee/consumer friendly state, and California tends to be a state in which individuals are more than willing to pursue the business owner in court .  Should you desire protection from liability in your business entity, but don’t want to form a partnership, visit our page on Corporations & Limited Liability Companies.

Partnerships

A partnership, by definition, is two or more people engaged in a business for profit.  There are multiple types of partnerships available to use as your business entity, such as a General Partnership, Limited Partnership, or Limited Liability Partnership.  Limited Partnerships and Limited Liability Partnerships offer different forms of liability protection, but have more registration requirements.  Partnerships are attractive as a business entity as the partnerships have a very high degree of flexibility in setting up the control, operations, and management procedures of the business.  The control, operations, and management procedures are laid out in, and governed by, the Partnership Agreement entered into between the partners at the beginning of the partnership.  While a Partnership Agreement is not required in California, it is highly recommended to ensure operation of the business is as smooth as possible.  The Partnership Agreement can be made orally or in writing.  Even though the Partnership Agreement can be made orally, it is highly recommended that the business owners put the Partnership Agreement down in writing, in case of future disputes between the business owners.

Partnership Agreements can be quite complex, so using an attorney to set up the Partnership Agreement is always recommended.  Our experienced business attorneys at Lee Shome & Kennedy, LLP will help you throughout the formation of your business, as well as drafting a customized Partnership Agreement specifically tailored to your business.