When a group of individuals comes together with a plan to market a product or provide a service for which they believe there is consumer demand, they will be confronted almost immediately with the need to make a multitude of important decisions.
For instance, these budding entrepreneurs will have to decide where they want to set up operations, how many people they need to hire and whether it will prove necessary to secure a loan. Outside of these logistical and financial matters, there are also many legal issues that must be addressed, including how they would like to organize their for-profit business.
While there are multiple options, five of the more commonly utilized business formation options here in Utah include corporations, limited liability companies, limited partnerships, general partnerships and sole proprietorships.
In today's post, the first in a series, we'll start exploring some of the basics of which those considering forming a general partnership should be aware.
Forming a general partnership
It may come as a surprise to many entrepreneurs to learn that no legal formalities are required to form a general partnership. Indeed, if two or more people reach an oral agreement to function as partners, or conduct their affairs in accordance with this type of business arrangement, that is all that is required.
However, the two or more people can also decide to set forth their decision to function as a general partnership via a written partnership agreement.
While some might question the need to take such a step given that no legal formalities are required, experts indicate that it can prove to be incredibly valuable should any legal issues arise.
For example, it's possible that in the absence of a written partnership agreement, a dispute may arise as to whether someone who is associated with the business is a partner and therefore entitled to a share of the profits, or whether a creditor can seek payment for a debt incurred by one person associated with the business from another person associated with the same business.
It's important to note that where there is no written partnership agreement, Utah courts will look to the state's definition to determine whether one exists in principle.
We'll continue our discussion of general partnerships in our next post, examining everything from how profits are divided to who is liable for debts incurred.
If you have questions or concerns about general partnerships or business formation in general, consider speaking with an experienced legal professional.