Major Facts About Partnership And Business

A partnership can be defined as an association of two or more persons who have agreed to combine their labor, property, and skill, or some or all of them, for the purpose of engaging in lawful business and sharing profits and losses between them.

Partnerships present the involved parties with special challenges that must be navigated unto agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority and succession, how success is evaluated and distributed, and often a variety of other factors must all be negotiated. Once agreement is reached, the partnership is typically enforceable by civil law, especially if well documented. Partners who wish to make their agreement affirmatively explicit and enforceable typically draw up Articles of Partnership.

A partnership is particularly very attractive if it helps to pool the talents or skills of partners for their mutual benefit. Partnerships require individuals who are compatible, honest, healthy, capable, dedicated and equally motivated to succeed. And because of the voluntary nature of partnerships, they are relatively easy to set up.
The term business in this definition includes every trade, occupation, and profession. Therefore, This article becomes very necessary for every individual to have the idea of bargaining/planning and negotiation in any kind of business level.

Humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace. In the most frequently associated instance of the term, a partnership is formed between one or more businesses in which partners (owners) co-labor to achieve and share profits and losses. Partnerships exist within, and across, sectors. Non-profit, religious, and political organizations may partner together to increase the likelihood of each achieving their mission and to amplify their reach. It is sometimes regarded as alliance, governments may partner to achieve their national interests.

A partner acts as an agent of the firm in the conduct of its business. A partner must, however, exercise the highest degree of good faith in all dealings with the other partners, devote time and attention to the partnership business, and must account to the other partners for any secret profits made in the conduct of the partnership business. The liability of a partner for partnership debts is said to be unlimited, except when the partner is a limited one in a limited partnership organized in accordance with the provisions of a state statute permitting such limitation of liability.

A partnership comes into existence by a contract entered into by the parties concerned. No formality is required but the agreement could be writing, inferred from conduct or oral. The agreement to form a partnership is known as a “Partnership Contract”, the most important provision of which spells out the manner in which profits are to be distributed.

Partnerships are governed by the law of contract. It is advisable for individuals who wish to form a partnership to draw up what we called “Articles of Partnership”. The article of Partnership essentially contains these items below:
• Name of Partnership
• Name and Addresses of each partner
• Statement of Business Purpose(s)
• Duration of the Partnership
• Name and Location of the Business
• Amount Invested by Each Partner
• Ratio for Sharing Profit
• Accounting Records and their Accessibility to Partners
• Specific Duties of Each Partner
• Provision or the Dissolution of Partnership and Sharing of Net Assets.
• Provision for Protection of Surviving Partners, Decedent’s Estate etc
• Restraints on a Partner’s Assumption of Special Obligations.

There are five types of partners:
1. Active Partner:- This is the partner who participates in all the activities of the partnership.
2. Dormant or Sleeping Partner:- This is the partner who does not take an active part in the activities of the partnership but shares in the profit.
3. Nominal Partner:- This is a person who lends his name to a lends his name to the partners for a consideration.
4. Secret Partner:- This is a partner who takes an active part in the affairs of the company but he/she is not known by the public as part of the partnership.
5. Silent Partner:- This is a partner who is known by the public as part of the partnership; but he/she does not take an active part in the management of the enterprise.

1. Greater Source of Capital:- The pooling of the individual resources of each partner helps to raise a large capital. It makes it possible for an individual with the know-how, new product, invention, or new idea but no money, to work with man with money who is interested in the project.

2. Greater Specialized Management:- The ownership of a business by two or more people makes it possible for them to pool their skills and judgment for the benefit of all concerned.

3. Greater Incentive for Employees:- Employees in partnerships tend to enjoy better fringe benefit package and higher salaries. They have better prospects for earned recognition and promotions.

4. Legal Recognition:- There is a partnership law that regulates the relationship between partners themselves, and between the partners and their parties that they have to deal with.

1. Personality Clashes:- Partnership require cooperation, trust and dedication but failure on the part of one of the active partners to discharge his/her own responsibilities diligently could lead to personality clashes and to the end of the partnership. Partnerships are known to have ended because the members could not agree on the best course of action to take on an important issue.

2. Difficulty in Withdrawals:- The contribution of each partner ceases to be the property of the individual making the contribution. When a partner needs money, he/she cannot withdraw his/her contribution or borrow money from the partnership without the express permission of the other partners. Many entrepreneurs dislike this lack of flexibility characteristic of partnerships.

3. Unlimited Liability:- Each partner is held liable for the obligations of the partnership. If one of the partners makes a costly mistake in the execution of the affairs of the partnership, creditors can sue, and if they obtain judgment against the partnership, each partner may have to sell his/her personal assets to meet the obligations.

4. Short Length of Life:- Factors like, death, prolonged ill-health, withdrawal, bankruptcy, insanity or of sorts could lead to the end of the partnership.

Conclusively, governmentally recognized partnerships may enjoy special benefits in tax policies. Among developed countries, for example, business partnerships are often favored over corporations in taxation policy, since dividend taxes only occur on profits before they are distributed to the partners. However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

How Will Your New Business Be Treated For Tax Purposes?

What Is Covered

This article contains a brief discussion of how the Internal Revenue Service treats the most common types of business entities for income tax purposes.

The discussion is limited to United States taxes and does not cover state or foreign taxes, or any other type of taxes.

Entities Discussed

The most common form of doing business for new businesses are the following:

  • Sole proprietorship
  • Partnership
  • Husband/wife joint ventures
  • Corporations
  • Limited liability companies

How each of these entities is formed is covered elsewhere. Only the income tax consequences of doing business using these forms of business will be discussed.

Sole Proprietorship

By definition, a sole proprietorship is one person doing business as an individual without the formation of any other entity to be used to conduct the business.

Since there is no business entity separate from the owner, the owner reports the business income and expenses on the owner’s personal tax return, Form 1040, Schedule C or C-EZ.


Partnerships involve more than one person or entity. Consequently, business owners operating their businesses as a partnership must file an annual information return (Form 1065) reporting the partnership’s income, expenses, gains, and losses.

The partnership does not pay income taxes directly. It passes income and losses through to its partners, who will then report their respective shares of partnership income and losses on their personal tax returns.

Husband/Wife Joint Ventures

This is a relatively new treatment of the income tax consequences of married couples doing business together.

On May 25, 2007 the Small Business and Work Opportunity Tax Act of 2007 was signed into law. It allows a married couple who both own and materially participate in a business and who file a joint tax return to elect not to be treated as a partnership for income tax purposes.

If this election is made, each spouse reports his or her share of the business income, expenses, gains, and losses on a Schedule C filed with the jointly filed Form 1040.


Broadly speaking, there are two types of corporations for purposes of this discussion: C-corporations and S-corporations.

C-Corporations: A C-corporation files U.S. Corporation Income Tax Form 1120 and pays tax at the corporation level.

Unfortunately, with a C-corporation when profits of the corporation are distributed to the owners (shareholders) in the form of dividends, a second tax is then paid by the shareholders on the dividends in the year they are received.

The double-taxation aspect of C-corporations is a primary reason that many business owners elect to be an S-corporation rather than a C-corporation.

S-Corporations: If a corporation elects to be treated as an S-corporation and meets the requirements to be an S-corporation, then it is not taxed at the corporate level and passes its income, losses, deductions, and credits through to its owners, who will then report their respective shares of the business activity on their individual tax returns.

The S-corporation will file U.S. Income Tax Return For An S-Corporation (Form 1120S) to report to the IRS the business activity it should expect to find on the shareholders’ personal tax returns.

Limited Liability Companies (LLCs)

Limited liability companies are unique for tax purposes and their tax treatment depends on choices made by the owner(s).

A single owner LLC is a “disregarded entity” and basically is treated like a sole proprietorship unless the single owner affirmatively elects to be treated as a corporation.

An LLC with more than one owner is treated as a partnership unless its owners affirmatively elect to be treated as a corporation.


The foregoing is a broad general introduction to the income tax treatment of the most common business forms used in the United States. Clearly, tax law is complicated and you should always have professional advice on your specific circumstances.

Living With Purpose After Selling Your Business or Leaving Your Job

You’ve just made a major decision about your life. You want to sell your business or leave the company you are working for and start your retirement.

However, retirement cannot be solely about travelling, enjoying your grandkids, or some other activity you desire, especially since you have anywhere from 10 to 30+ years ahead of you. How do you transition out of a business to not running a business or step away from your long-term career?

With the Baby Boomer generation headed towards making a transition in the near future, it is imperative that individuals do not end up without a plan for what they will do next. Too often, business owners who leave the business (or individuals leaving their careers) will think that they can deal with their lives in a positive manner once the transition is done. However, the following negative experiences are likely to occur in the case where the business owner has not planned for this stage of their lives:

“Retirement Remorse” – People who don’t have a plan for a fulfilling new future and don’t know what they are going to do with all the free time they suddenly have will often become depressed, bored, and angry with themselves or others. They miss their old lives, because at least then they had something interesting and meaningful to do. They often wish they could go back to “the way things were”.

“Retirement Rut” – Often, individuals who have successfully left their full time positions will find themselves spending their time on meaningless and purposeless activities just to keep busy. They become dissatisfied with their lives because these activities don’t give them a sense of meaning or purpose.

“Post Transition Stress Disorder” (The other PTSD) – This is often experienced by individuals who have left their companies without doing proper thought-provoking planning for their lives prior to leaving. They often have a loss of enthusiasm for life, they feel that there is nothing to look forward to, and that life has no more meaning and purpose. These individuals will often end up making poor life decisions and rash personal choices in order to make sense out of life once again.

“Gray Divorce” – The rate of Baby Boomers that end up in a divorce is markedly increasing. Spouses are often not prepared for the “full nest” syndrome that occurs when the business owner/individual is now home 24/7.

So what does a person do to plan a purposeful and meaningful life post transition? The answer lies in doing internal preparation as well as external preparation for their retirement years. One of the most important activities an individual should do to prepare themselves internally for the transition is to come up with a list of all of their fears, problems and challenges they have surrounding this change. Then, they need to really expand their thinking about how these negative conditions can be turned around into opportunities.

Another activity a person should consider is how to define themselves into a whole person – not a person defined by what they are pre-transition. One exercise to consider would be to list all of their accomplishments they have done throughout their lives on a personal vs. professional level. They can also brainstorm through all of the life transitions they have gone through and analyze and become aware of the lessons learned by going through past transitions. Often this can provide individuals with new insights on how these lessons learned can be applied to the future transition in a positive manner.

Next, an individual should do some thought-provoking exercises on what provides meaning and purpose to them as a whole person, not just as a business owner or career professional. What brings them joy? What makes them happy? What gives them a sense of direction in their personal lives? What gives them positive self-worth? The more an individual can give answers to these questions, the better!

The external preparation involves an individual coming up with lifestyle ideas in the following areas:

Physical Health Activities
Intellectual Stimulation
Recreational/Creative Activities
Activities with Spouse/Partner
Activities with Family Members
Residence – where Ideally do I want to be?
Social Connections
Income Producing Work
Volunteer/Philanthropic Activities

Once a person has brainstormed ideas for each of these areas, the time comes to make a final decision on what they want to do for each of these areas and which ones provide the most meaning and purpose for themselves. Then, individuals can come up with a tactical plan on how they are going to implement these activities into their lives post-transition, and how to prioritize them.

Of course, these suggestions are only a small part of what a person can do (and should do) to make a successful transition out of a business or career. Couples should work on developing these plans together. Often, it makes sense to seek out a professional consultant who is trained and/or certified in transition planning. These individuals can provide a systematic process that takes into account many of the mental and emotional issues and concerns that an individual may be facing with the pending transition. They often have proven tools, exercises and programs to make the process successful and positive for the individual.

If you are looking at transitioning in the near future, don’t make the mistake that many individuals do, which is essentially ending up on the “other side” without a comprehensive plan for your lifestyle that will provide you with ongoing meaning and purpose. Take the time for planning and you will experience a wonderful retirement and quality of life after your transition!

The Career Advantage of Business Administration Courses

To compete in this difficult job market, the individual needs to show an employer the skills and competencies needed to help a business or other organization succeed. What employers want is someone who can help them meet their business goals and experience financial and professional success. Business administration courses offer the student several advantages in this regard.

Students in business administration develop strong analytical and critical thinking skills. They learn to communicate clearly both in writing and speaking. They study how to wisely manage financial aspects of the business, and how to conduct human resources programs. Graduates of business administration schools provide the leaders of the future business world.

Business administration courses have a direct application in the working of a successful enterprise. They include accounting, business leadership, marketing, ethics, human resources, risk management and finance. All of these are topics of great interest to owners of both large and small businesses. This versatile degree enables an applicant to demonstrate competencies in these fields for entry-level positions that will be both gratifying and financially rewarding.

Depending on the chosen specialty and geographic location, graduates with a business administration degree can expect to start at a salary of $35,000-$50,000. Paying back those student loans should not be a major problem when a new graduate can command this substantial income.

As a general rule, positions in health care, information technology and financial services offer higher salaries. Retail jobs and sales tend to pay less. The most important consideration, though, is a job that will allow for advancement within the company.

The business administration courses prepare the individual to perform several varied functions within a corporation or a small business. Because the degree is versatile, changing positions within the company or seeking a new position with a different employer are available options to advance in a chosen career.

Most business administration degrees offer some degree of specialization. Three options that are particularly promising are International Business, E-Commerce and Entrepreneurship. Specializing in International Business will prepare an individual for the exciting opportunities of international business transactions. This preparation should include study of cultural differences and language, international marketing and negotiations.

E-Commerce is a growing field with great opportunity for the individual who develops competence using a computer for various business functions, including online marketing. Applied courses, labs and competitions included in Entrepreneurship training will prepare the student for a leading role in small businesses. Since the majority of new jobs are developed by small business, this is an excellent opportunity.

An affordable school program that leads to employment opportunities will grant the student an edge in the job market. Prospective students should check with the school to determine the cost of tuition and fees, and to plan for their education. They should also submit the Free Application for Federal Student Aid (FAFSA) soon after it comes out on January 1.

For the ambitious and creative individual wanting to find a place in the world of business, the two-year or four-year business administration degree is an excellent choice. Business administration courses provide preparation for entry-level positions in this field and will give the individual an edge in the job market, plus the skills and competencies needed to secure and maintain a meaningful, productive and rewarding position.

Establishing Business Credit

Business versus Personal Credit:

Personal – Personal credit building starts when an individual provides their social security number and applies for their first credit card. At that point a credit profile is started with the personal credit reporting agencies in the region of the country in which they reside. This profile, also commonly known as a “credit report”, is built with every credit inquiry, credit application submitted, change of address and job change. The information contained in the report is usually reported to the credit bureaus by those businesses issuing credit. Eventually, the credit report is viewed as a statement or report of an individual’s ability to pay back a debt, and is the key tool to access and grant credit.

Business – When a business issues another business credit, it is referred to as trade credit (credit from vendors or suppliers). Trade, or business, credit is the single largest source of lending in the world, but it typically not reported to the business credit agencies by most small businesses. The data regarding trade credit transactions must be submitted and then is accumulated by the business credit bureaus to create a business credit report using the business name, address and federal tax identification number (FIN). The credit bureaus use this data to generate a historical report about a company’s business credit transactions and payment history. Typically, the businesses issuing credit rely on the business credit report to determine the credit they are willing to grant and the amount of the credit limit. Additionally, many businesses (suppliers/vendors) will submit credit reference applications to the key suppliers of the business as a method to obtain payment patterns as part of the credit granting process.

The major credit bureaus are:

  • Dun & Bradstreet
  • Business Credit USA
  • Corporate Experian
  • Small Business Equifax
  • TransUnion (Personal)

The information provided to the business credit bureaus (primarily D&B) is sent in voluntarily, as businesses are not required to report. Therefore, credit bureaus may never receive any information about the business transactions on credit and a business could go for years accumulating business history without being reported to the credit bureaus and establishing a positive business history of sound credit practices.

Establishing Business Credit History:

Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent. With today’s tighter credit scrutiny the higher the credit score, the more likely an individual or business is to obtain credit and at more favorable terms (interest rate and contract length).

While it is important to know that there are many factors that affect a credit score; it’s based on more than just whether you pay your bills on time (still very important). The credit score will be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you’ve had a credit profile, the number of inquiries made on your credit profile, paying the bills on time, bankruptcy, as well as other considerations.

The typical American consumer credit report receives two to three credit inquiries per year and usually has 11 credit obligations – typically broken down as 7 credit cards and 4 installment loans. Business owners are not your typical consumer, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact the personal credit score. Additionally, because business inquiries and personal inquiries are not separated on the personal credit report, the personal credit scores are negatively impacted. As mentioned earlier, using the personal credit history to get credit for their business, businesses are not able to build their business history/score, all of which could help attain critical business credit in the future.

A critical mistake many business owners make is using their personal information to apply for business credit, leases and loans. This practice has the resultant impact of potentially lowering their personal credit score, while not building a business credit history and business credit score.

A key to establishing credit for the business and a profile and score is to find companies (UPS, FEDEX, etc.) or your key supplier and vendors that will grant credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper credit bureaus, those companies will help the business establish a business credit profile and score.

The Seven Steps to Success:

1. Company Legal Structure – The business must be a legal entity unto itself in order to establish business credit. Therefore, it is recommended to form a corporation (C Corp) or LLC (discuss with your CPA the advantage/disadvantages of a C Corp versus LLC) as opposed to structuring your business as a sole proprietorship or partnership. Formation of a sole proprietorship or partnership, dictates that personal credit information could be included on the business credit report. Additionally, as a sole proprietor or partner in a partnership, you are personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLC’s, on the other hand, provide the business owners liability protection, and can build a business credit profile that’s separate from the personal credit profile. Therefore, apply for credit under your business’s name and find businesses will to grant credit without a personal credit check or guarantee.

2. Register with Business Credit Agencies – The best known business credit bureau is Dun & Bradstreet. Dun & Bradstreet has a process on their web site to establish a D-U-N-S number (a specific 9 digit number related to your business) and instructions how to establish a business credit rating. It is strongly recommended that you contact D&B and follow their process to establish business credit. The following is from the D&B web site:

How do I get started with D&B? With our unsurpassed global data collection system, D&B continually gathers the data that initiates the creation of business credit profiles on new companies. Many kinds of activities can trigger a profile on a new company, such as incorporating your business, applying for a loan, getting a business telephone number, taking out a lease on office space – even just when another company seeks information from D&B about your business. Still, a new business may not have a complete business credit profile. Getting a D-U-N-S Number from D&B – the worldwide standard for business classification systems – is an essential part of helping you establish your business credit profile and will ensure that when a company looks you up in the D&B database they will find you. In some cases, a D&B D-U-N-S Number is so a requirement for doing business some entities, such as the US government.

You should make sure you have a D&B business credit profile if:

  • You are planning to obtain a business loan
  • You need to purchase or lease equipment
  • Your cash flow is tight
  • You want to ensure you are getting a fair deal from lenders compared to your competition
  • You want to pay net 30 days instead of COD (Cash On Delivery)
  • You are paying interest at prime plus 1, or even higher
  • You plan to do business with entities that require a D-U-N-S Number, e.g. the US Government

These issues and dozens other like them can be addressed by having a strong business credit profile. A good rating provides you with the financial freedom to take the steps you need to grow, and is a straightforward, unbiased method for other companies to assess your level of risk when considering taking you on as a creditor. A poor credit rating is a certain barrier to growth and success, preventing you from getting adequate funding on fair terms.

Communicating directly with D&B will help establish your business credit in less time. If you are a new company, D&B can help you build a complete business credit profile from the ground up; if you have been in operation for a while, you will want to improve and/or protect your business credit profile. Find out more about how to establish, monitor, improve, or protect your business credit.

3. Credit Market Requirements – Businesses must meet all the requirements of the credit market in order to have a higher probability of credit approval, as not being in compliance with the credit market can “send up signal flares” with both credit bureaus and potential grantors of credit.

Some of the “signal flares” include:

  • not having a business license,
  • not being registered with the Secretary of State for a certificate of good standing,
  • operating under your social security number rather than a FIN or EIN,
  • not having a phone line (land line) that is listed in the phone directory in the exact business legal name,
  • no web site, or
  • not having a business email address (not AOL or gmail, but a specific URL for your company).

4. Small Business Credit Lines – Investigate and locate a minimum of five businesses (vendors/suppliers) willing to grant a small business credit without personal guarantees and will report the payment experiences to the business credit bureaus. This will assist your business to establish a credit report and build a financial credit foundation for the company. Find companies willing to grant credit that report to the credit bureaus such as, UPS, FEDEX

5. Business Credit Cards – Obtain three business credit cards (Sam’s Club Discover Business card), that are not linked to you personally and that report the business credit to the reporting agencies. Then be sure to always pay your bills on time!

6. Financial Statements, Business Plans and Loan Packages – These documents are often required by many credit grantors as part of their loan application process. CxO To GO is a national professional services firm that has assisted many business with their financial statement preparation and business plans. Additionally, CxO To Go has packages such as PowerPlan and PowerPlan2 for business plans, PowerPuncher for executive summaries, CFOCast for financial projections and BankSell for bank proposals so lenders and bankers will take action. It is important to note that 61% of all businesses are turned down for a loan due to a poor loan package, however with BankSell the lender loan package gets results and moves the applicant to the top of the list for review and credit committee approval.

7. Debt management – Be a smart money manager and manage the debt levels to ensure they are not too burdensome and can be paid back with current cash flow. Do not incur debt that will over leverage the company and cause missed or late payments.

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the Trusted Advisor to Owners and CEO’s. By utilizing his extensive experience as a successful financial and operational C-level executive, Keith brings a results driven leadership style to complex situations.