If you are considering going into business as a partnership, then you’ll need to be prepared to split the profits. Before you make any decisions about splitting profits, talk to a lawyer about the best way to legally structure your business. The simplest route is to form a “general partnership”, simply register your “doing business as” name and open a bank account in the business’ name. Professional partners, such as lawyers or accountants, are often advised to go this route since it protects the business owners from personal liability for the debts or liabilities incurred by the partnership. For example, if you run into a cash flow issue and your business fails, neither partner will be personally liable for any debts owed to creditors. Another option is a “limited partnership” in which one partner invests in the business but does not manage it, leaving that task to one or more of the other partners. In a business partnership, you can split the profits any way you want–if everyone agrees. Remember, in an equal partnership neither partner can decide without the other’s approval, whereas in a 51-49 ratio, for example, one partner has final authority. Whatever you decide, it is a good idea to create a profit-sharing agreement and make it part of your larger partnership agreement. A partnership agreement is the business version of a prenuptial agreement and should be completed before you start operations, and any profits are made. Although an agreement is not legally required, it can protect your interests as one half of the partnership for the duration of your partnership and through its dissolution.
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