 In this discussion we will discuss the discussion question of describe key factors to think about when considering a partnership for a business entity. So this is another kind of discussion or essay question which is fairly common but also fairly loaded question you can go on for quite some time with some question like this. And it goes back to basically comparing, you know, a partnership type of entity to some other type of entity. So often times when looking at the key factors of a partnership type of entity we may want to compare and contrast them to other types of entities and say well why would I be a partnership versus a sole proprietor or a partnership versus a corporation. And you might think well you can't be a sole proprietor if your partnership that's not a comparison but note that often times you have an individual that really is the driving factor that comes up with a business idea, a business plan and then gets to the point where they need to make a decision about maybe they need capital investments maybe they need other skills involved and then they have the question of well should I hire someone, should we have a contractor for someone or should we get a partnership, a partner in the business. And so a sole proprietor could very well be considering those factors, what should I do when I'm expanding, what should I do when I need more help somewhere else, what should I do you know in those situations should I hire someone, should I have a contractor or should I have a partner be involved. And often times it's a capital investment where their big consideration is should you have a partnership because equity interest often will be helpful to gain revenue so then the question is should I have a partner or should I get a bank loan and would be kind of the question between those two. The driving factors are often going to be well obviously when you have a partnership you've got mutual agency and two people which basically means two people are involved, two people are involved in decision making and two people both in a general partnership have the ability to sign contracts and bind the partnership to those contracts. So in other words when you have two people or more involved any of the partners can then bind the other's individuals within the scope of the partnership to contract. And so that's something to just be aware of you know it's kind of a bit of a risk that you got to be able to trust your partners because they can bind you into these contracts without without necessarily your consent to it and then you also have the liability issue where there's unlimited liability in a general partnership. That's the same for a sole proprietor but it's different than some other types of entities. So for example a corporation is a separate legal entity and therefore if someone like sued the corporation the individual owners the stockholders personal assets should have protection against the suing of the company more so than a partnership where it's not a separate legal entity and therefore personal liability personal assets are something that can be subject to a lawsuit or some kind of some kind of problem like that. And so there's some issues with that note with with the liability type of issue it is possible to one incorporate but that you know has its pros and cons to or to have a like a limited liability type partnership where you have an investor type of partner who isn't actively involved that may be a way to generate capital as well kind of a third way to think about you know when that individual owner is trying to think about should I should I bring out a new partner or should I take out a loan a third part possibilities to bring in a limited partner someone who's not involved really with the business but who has an equity share in the profit of the business and that limited partner can then have more liability protection that's the point of having that limited partner the other fact is that the the partnership is not going to be a separate legal entity that's the benefit because it's not a separate legal entity it doesn't have the benefit of the liability but protection but it does have the benefit because pretty much because of that same factor separate legal entity not being a separate legal entity that it doesn't have double taxation so that means that all the income from the partnership will then flow through to the partners 1040s and that's typically thought of often times as a benefit because if for example we're a partnership and it's taxed on the corporate level then it'll also be like a corporation because it's a separate legal entity in other words will typically have a corporate tax at the corporate level and then when the money goes to the partners in the form of dividends we also typically have a tax and based on the same revenue so that's double taxation of the same revenue and so that's that's usually a big problem with corporations and the reason they come up with some of these other kind of hybrid type of entities like an S corporation or a limited liability company so that's going to be another kind of issue with the partnership when you when we go into the partnership also it's just note that the partners should or really think about having a formal agreement it's not required to have a formal agreement you could have kind of an oral just agreement between partners or you could you know if you have no agreement you know just the implicit agreement then the profit sharing is typically thought to be whatever 5050 or an even split type of profit sharing and a lot of people when they go into a partnership especially with family or friends run into problems because they will think that you know we're family and friends and we don't need to define the terms that specifically because we all love each other and whatnot and that's might not that might happen but usually people even close friends and family don't really have exactly the same idea of what they want or how much time they're willing to expend or how important you know a partnership is from one person to another so it would be best to have a formal written agreement and list those things out just so everybody's as clear as possible as to what each individual wants and and then that negotiation process can be a little I guess uncomfortable to put that down but once you have the formal agreement it should make life in the future way easier because you can basically have everybody has a better understanding of what's going on so in other words every I would think that the partnership should really consider a formal formal and as detailed agreement of the partnership arrangement as possible