The State of Utah recognizes several different types of partnerships. No formal registration is required to form a general one. However, these types provide no protection to the partners from the creditors of the business. For that reason, other more formal types, such as limited partnerships, are generally recommended.
Taxation
One of the most important benefits of a partnership is the flexibility the Internal Revenue Code permits when it comes to how the business and the partners will be taxed on income. In fact, a properly drafted partnership agreement can allow for the sharing of profits and losses between the partners in whatever arrangement the partners agree. Limited liabilities companies with two or more members are also generally taxed as a partnership under the Internal Revenue Code.
Limited partners who do not participate in management of the company will not be subject to self-employment tax on the partnership income.
Operations
A partnership can be managed by its ownership or by a third party or parties. Such designation of rights and obligations should be outlined in a well drafted partnership agreement. An agreement should also define other important operating matters such as when ownership approval is required on a transaction, how executives will be appointed, when business meetings will be held, and the process of liquidation at the end of the business life cycle.
In limited partnerships, certain partners will not be allowed to participate in management if they intend to maintain limited liability, which prevents a creditor from reaching personal non-business assets.
Acquisitions
The sale or purchase of business formed as a partnership can be an anxious process and specific items need to be considered and covered. Some of these things include letters of intent, purchase agreements, valuations, escrow accounts, assignment of assets, management approval, and tax structuring.
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