If you live in North Carolina and work with a business partner, you need to understand your relationship status early on. There are different types of business partnerships in NC, and if you don’t choose one, you automatically become a general partnership. Let’s look at the state’s “general partnership” definition and how your business structure affects your business legally.
Types of Partnerships in North Carolina
In NC, there are 4 different types of partnerships that the state recognizes:
- General Partnerships: Created by agreement of two or more owners. A partnership exists by default when two or more owners engage in business without forming another business entity, such as a corporation or limited liability company.
- Limited Partnerships
- Registered Limited Liability Partnerships
- Limited Liability Limited Partnerships
How to Form a General Partnership
For a general partnership, it is not necessary to file any documents with the NC Secretary of State. However, you can check with the NC Secretary of State to see if your business name is available. If your general partnership chooses a name other than a combination of your own names, you’ll also need to file an assumed name certificate with the Secretary of State.
You may also need to check if your business name is unique and file a trademark registration to protect your brand name and logos for use on goods and services.
Why Write a Partnership Agreement?
You can have an oral agreement with your partner about governing the partnership. A written agreement is not required. However, writing a partnership agreement is a crucial first step that many general partnerships skip over and later regret.
Without a written agreement, one or both partners have preconceived ideas about how the business will work, their responsibilities, and who will pay taxes or take on debt. Many more issues can crop up and cause discord in a general partnership without a written legal agreement.
Meeting with a business attorney can help you draft your partnership agreement. It should include both of your expectations so that there is no misunderstanding. Without writing out your thoughts, you or your partner may remember a spoken conversation differently.
A basic agreement can prevent the foundation of your partnership from cracking in the future. Some essential items for your agreement include:
- Who will make monetary contributions, and how much? Any limits?
- Whether and when to bring on another partner or limited partner
- Whether your general partnership may someday convert into a different type of business structure such as an LLC or LLP. When will this happen?
- Who, how, and when each partner pays losses.
- What happens if your general partnership goes bankrupt?
- Who, how, and when each partner receives profits.
- Who makes the decisions? Is there voting? How does it work?
- How does a partner withdraw from the partnership?
- Who manages the day-to-day responsibilities?
- What happens to the business if a partner dies?
- How will you work through disagreements? Mediation? Arbitration?
Considering these issues in your partnership agreement is crucial to a smoothly running business. When everyone is on the same page, there is less likelihood of disputes.
Let’s Talk Liability
In a general partnership, both partners have unlimited personal liability for the debts and obligations of the business. Liability means that if your partner cheats on your business’ taxes, you are also personally liable for any back payments.
In a general partnership, you bear the burden of anything that happens, including court settlements or tax mistakes. If your partner commits a wrongful act or omission that causes someone else to suffer loss or injury, your business is liable in a court of law. You are just as responsible for what your partner did as they are. If your partner receives money or property on behalf of the business and then misapplies it, the partnership, including you, is liable to make good the loss.
To avoid the liability you share with your partner, you can consider other business structures that protect you from personal liability.
Considering Other Business Structures
Because you are personally liable for your partner’s mistakes in a general partnership, you may want to consider other business structures that limit your liability, such as an LLC or LLP.
In a Limited Liability Partnership business structure, a partner does not face individual liability for debts and obligations of the partnership. A partner does not become liable by participating in the management or control of the business.
Talking with a business attorney can help you and a partner decide the best structure for your particular business.
We Can Help
Whether you are just starting your partnership and need to write up an operating agreement or you need help settling a dispute, we are here for you. Our business attorneys focus in on business structure issues to help you and your partner thrive in business together, whether as a partnership or an LLC. We work with you to determine the best path forward, considering your industry, liability, experience, and worries. Contact us today to set up a consultation and find out how we can help your business work for you.
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