When one starts a new company with a partner or several partners, it is important to consider potential problems that could arrive in the future. For example, what happens if your partner dies or decides to move on from the business? If you don’t have a buy-sell agreement, these situations can be difficult to figure out. That’s why it’s important to go to an attorney you can trust when it comes to small business law.
First, let’s define partnership
When using the term partnership, it is important to determine between a partnership as a legal entity and a partnership for tax purposes. Under Oklahoma law, there are three types of partnerships – a general partnership, a limited partnership, and a limited liability partnership.
A general partnership has no filing requirements and must have at least two owners. Each owner has unlimited liability for the debts and obligations of the partnership. A general partnership files federal and state partnership tax returns but the income, gains, losses, etc. flow through or pass through to the individual partners without being taxed at the entity level.
A limited partnership (LP) is created when a Certificate of Limited Partnership is filed. There are two types of partners in a limited partnership – general partners and limited partners. General partners have unlimited liability and manage the partnership. Limited partners have liability limited to their investment. They also have little or no say in the management of the partnership. A limited partnership files the same returns and taxes the same as a general partnership.
A limited liability partnership (LLP) is mainly for professional organizations such as law firms, accounting firms, and medical practices. All partners of an LLP have limits in their liability to their investment in the partnership. The partnership agreement determines governance. An LLP files the same returns for income tax purposes and taxes the same as a general partnership.
What is a buy-sell agreement?
If your company has more than one partner, it’s a good idea to have a buy-sell agreement. The agreement would be either a separate agreement or built into your operating agreements to avoid future problems. Buy and sell agreements are common in partnerships and are necessary to ensure smooth transitions in ownership when a partner dies, retires, or decides to exit the business.
How can a small business lawyer help?
If you’ve got two or more owners, give Robertson and Williams a call. We know small business law. We’ll help you figure out what’s necessary and appropriate for your company.
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