Partner Definition

A partner is an individual who formally agrees to jointly manage and operate a business with someone else. 

In other words, a member of a business partnership between two or more people is referred to as a partner. These partners share the profits and losses of the business. Not all partners have to have the same amount of responsibility or financial interest. 

How does a partnership work?

Partnerships come in many forms and encompass joint business endeavors undertaken by different parties. The parties can be private individuals, businesses, governments, or non-profits. Goals may vary depending on the type of relationship. Partnerships are often formed by a formal agreement, but formalities vary by state. 

Partner Examples: Types of partnerships

There are three categories of for-profit partnerships.

General Partnership

Unlike most other small business types, general partnerships don’t require formal filing with the state. The partner benefits from the simplicity of just having to start doing business. A general partnership doesn’t require payment of ongoing state fees, but they do still need to acquire all permits and licenses necessary to operate the business.

Partner disadvantages (for general partnerships) are that partners are personally liable for the debts and liabilities of the company. 

Limited Partnership

A limited partnership consists of partners who have differing degrees of liability. In this type of legal entity, at least one partner has unlimited liability. This can be one or more general partners. 

The other partner or partners have limited liability. Their personal assets aren’t available to satisfy the debts or liabilities of the company. Their degree of liability is tied to their investment in the business. 

Limited partners are often silent partners, meaning that general partners conduct the daily operations of the business. 

Limited Liability Partnership

A limited liability partnership (LLP) is only available to certain types of professional service businesses. The list of businesses differs by state but generally includes accountants, attorneys, dentists, consultants, architects, and others. 

Partner advantages for LLPs include protection from being held personally liable for the business debts and liabilities. That being said, an LLP doesn’t shield partners from liability for personal misconduct such as malpractice. 

What is a Partnership Agreement? 

A partnership agreement isn’t required by the state to conduct business, but it’s highly recommended. This internal document details how the partnership will operate. Provisions may include partner rights and responsibilities, management duties, profit and loss sharing, investment information, dispute resolution, and more. 

There’s no limit to the number of partners within a partnership. Remembering that everyone has a unique personality and point of view, a Partnership Agreement could be really important for making sure everyone is on the same page. This is something we can help with as part of our Business Formation Services.  

Should you enter into a partnership?

Now that you understand the definition of partner as it relates to business relationships, you can make a more informed decision on the best structure for your company. As a business owner, you have a lot of options for what type of legal entity you want to form.

The type of business and the people involved are important decision-making factors. If you’re unsure, consider seeking advice from a financial or business consultant. 

Summary

There are multiple types of business partnerships, but the partner definition is generally the same. A partner is a party formally engaging in business with another party. 

We can help

Once you have evaluated the pros and cons of starting a business partnership, we can help you form your business of choice. We know the process of starting a business can seem daunting, but we’re here to take some of the stress out with tools and services designed to help you get your company underway and growing.