Your partnership better have a Partnership Agreement!

Two or more people who start a business together and don't take special steps are by default considered a partnership in most places. Partnerships are the business world's equivalent of a "marriage". Really simple and neat while everything is neat, but potentially very messy if it ends in divorce or breakup. A desirable answer for the marriage and partnership may be a good pre-nuptial agreement for the marriage and the partnership agreement for the partnership.

Sure, it's very embarrassing to admit thinking about divorce even before the marriage but it definitely can help avoid a lot of ill feelings and misunderstandings when trying to divide the marriage assets in a mutually acceptable way. Same with the partnership agreement. Further, the partnership agreement can also establish who makes decisions and how, how profits or losses should be divided, etc. And you should know that partners (except limited partners) are potentially responsible for any and all debt incurred by any partner "on behalf of the partnership". If Joe gets a Ferrari as his partnership vehicle but doesn't follow up with payments, you and any other partners may be responsible - partnership liability is far reaching and potentiall disasterous.

The other aspect, certainly in California, is that if you don't have your own partnership agreement, then by default the State of California will require you to abide by the California State partnership agreement. Dividing everything exactly 50%-50% may not be what you want or desire or what would be reasonable, but it's what you get by default.

Bottom line, if you must use a partnership, make sure you have your own partnership agreement. Better yet, consider a corporation or limited liability company instead.

Many people start their business as quickly as possible to start making money, but in reality businesses really should at least investigate, evaluate, consider and then choose an appropriate legal structure for the business - and it is not always straight forward nor simple nor irrevocable. Clearly, if possible you should contact a good lawyer for advice.

The more common structures to consider include:

Sole Proprietorship - A sole proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities.

Partnership / Limited Partnership - There are several different types of partnerships, which depend on the nature of the business that is established in the partnership agreement. Limited partners may have less liability, but other partners share full responsibility for the business assets and liabilities.

Limited Liability COMPANY - An LLC is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. An LLC can choose to be taxed as a corporation.

Corporation - There are several different types of corporations, which depend on the nature of the arrangement. A corporation is more complex and generally suggested for larger, established companies with multiple employees. The S corporation can avoid the "double taxation" issue by using pass through taxation.

How can I find out what licenses, certificates, inspections and all that other stuff is required for my business?

One of the simplest and easiest ways to see what kind of licenses and other stuff is needed for your business in California is California Business Permits Made Simple. Of course, if your business is somewhere else, the SBA has a nifty link to find the right resource.

Now they don't cover every type of business, but they do cover a lot and by choosing a similar or related business you can get a list of permits that you need to consider for your business on a City, County, State and Federal perspective.

Employees can definitely be a critical factor in the operation and profitability of a business. Yes, you may not be able to operate without the additional people, but also yes, if those people are employees, your business is responsible for a lot more than just their salaries and that might put the squeeze on your profitability if margins are tight in your marketplace.

So, if you are trying to decide if you will use Independent Contractors and avoid all those extra costs associated with employees, you need to be very conscious of restrictions and conditions required in order to be able to use those Independent Contractors. Here's a statement from the SBA:

Read more: Trying to decide if you will use Independent Contractors or Employees?