If two or more people are going to own and operate your business, you must choose between establishing a partnership, a corporation or a limited liability company (LLC). This section looks at the general partnership, which is the type of partnership that most small businesses will be considering.

The best way to form a partnership is to draw up and sign a partnership agreement. Legally, you can have a partnership without a written agreement, in which case you'd be governed entirely by either the Uniform Partnership Act or the Revised Uniform Partnership Act.

Beyond a written agreement, the paperwork for setting up a partnership is minimal about on a par with a sole proprietorship. You may have to file a partnership certificate with a public office to register your partnership name, and you may have to obtain a business license or two. The income tax paperwork for a partnership is marginally more complex than that for a sole proprietorship.

Put it in writing. If you go the partnership route, I strongly recommend that the partners sign a written partnership agreement, even though an oral partnership agreement is legal. The human memory is far too fallible to rely on for the details of important business decisions.

Excerpted from the "Legal Guide for Starting and Running a Small Business" by Fred S. Steingold
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