In a partnership, the liability of each general partner for all the debts of the firm is unlimited, just as it is in a sole proprietorship. This generally means that each of the general partners is personally responsible for all the debts of the firm. This amount could very easily be in excess of the amount they have invested in the business. A partnership, like a sole proprietorship, lacks continuity. This means that the business terminates upon the death of the owner or partner, or upon the withdrawal of a partner. In some special situations, a limited partnership (see below) should be considered.
You also have to remember that one of the principal causes of failure among businesses is inadequate financing, so don't overlook the fact that it is your responsibility to provide, or obtain from others, sufficient money to establish a firm foundation for your enterprise. Should you need more money, sharing the ownership of the business is one way of obtaining it.
You also may lack certain technical or management skills that are of major importance to the business you have chosen. Obtaining a partner with these skills may prove the most satisfactory way of covering this deficiency.
Great care should be taken in deciding on a partner. Compatibility, personality, and character, as well as the ability to render technical or financial assistance, should all be given serious consideration. Friendship is a wonderful thing, but friendship alone should not be the sole or determining factor in selecting a partner. The selection of a partner could well be one of the most important decisions you will have to make. Base your decision on logic and not on emotion. The act of any one partner, relative to the business, will bind the partnership and partners for all their assets, whether or not they invested in this particular business.
Although the law does not specifically require it, we very strongly recommend that written Articles of Partnership be executed and that this agreement cover all the points suggested below. It is extremely important that partners sign a written agreement if profits or losses are to be shared in any way other than strictly according to the interest each partner holds in the business. A written agreement, properly drawn, can prevent misunderstandings among partners in later years; verbal agreements are subject to different interpretations by well-intentioned people, especially after the passing of a few years' time. Sample of an outline of points that should be covered by a partnership agreement.
Limited Partnership: Refer to the NJ State Statutes--N.J.S.A. 42:2A for information on limited partnerships. Also, you may wish to consider a new form of partnership, the limited liability partnership. Refer to N.J.S.A. 42 for more information on limited liability partnerships.
