What are the disadvantages to author partnerships?
March 5th, 2015 → 1:23 am @ Carol
First of all, I wanted to say that I enjoy your website. Very informative.
My sister and I want to write books together for a long term, however on one of your post you said that you do not recommend partnerships. We wanted to start a partnership to separate profits from our personal account. I have several of my own books and I don’t want to get confused when sorting out the payments. What are the main reasons I shouldn’t be in partnership?Dee
Dee,
Good questions. Here are the disadvantages of forming an author partnership:
- Unlimited liability. General partners are liable without limit for all debts contracted and errors made by the partnership.
- Each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
- If the business becomes indebted and insolvent, a partners’ personal assets might be needed to cover the debts.
- Profits must be shared with your partners, even if you do most of the work. Partners need to decide how to value each others’ time and skills. What happens if one partner puts in less time?
- Decisions are shared. You have to consult your partner and cannot make decisions by yourself.
- Disagreements can happen making family gatherings very awkward.
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There can be vagueness of each partner’s responsibilities
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There is no hierarchy of authority. No one gets final authority.
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All partners can act on behalf of the partnership. One partner can enter into contracts and bind the partnership to agreements.
- A partnership is for the long term. Expectations and situations can change, which can lead to dramatic and traumatic split ups.
- If a partner decides to leave, you will probably have to buy out their portion of the partnership so that you can continue the partnership as a business. This means hiring a CPA with an expertise in business valuations to determine the value of the partnership.
- The tax return for a partnership is much more complicated than a sole proprietorship tax return, meaning you’ll need to hire a CPA to do the tax return.
- You need a formal, written partnership agreement, so you’ll need to hire an attorney.
and finally, you should be aware of the complications of joint copyright ownership. From attorney Francine Ward, “A joint owner of a copyrighted work has an undivided, equal interest with the other joint owners. What that means is each copyright owner shares equally in all profits generated by the copyrighted work.”
So that gives you a lot to think about!
Carol Topp, CPA
Sources:
https://www.business.tas.gov.au/starting-a-business/starting-a-business-from-scratch/choosing-a-business-structure-intro/partnership-advantages-and-disadvantages
https://smallbusiness.findlaw.com/incorporation-and-legal-structures/what-are-the-disadvantages-of-partnerships.html
Tags: author, business, co-author, partnership, writer
Tom Sweeney
6 years ago
Regarding the disadvantages of an author partnership, it seems to me that forming an LLC rather than having an informal partnership would cover most of the disadvantages. Wouldn’t an LLC provide protection against personal liability? The operational document could specify that obligations need the approval of both partners, and language in the agreement would take care of individual responsibilities and vague expectations, would it not, as well and work required for payouts, and also specify how the partnership would end should there be a disagreement. The big question I have is regarding taxes. If the partnership was a husband and wife filing a joint return (my situation), would the taxes be more difficult than a sole proprietorship? A secondary question is how is copyright handled, i.e., how is it transferred to the LLC?
Carol
6 years ago
An LLC with two members is taxed as a partnership. LLC status is not a tax status, so a 2-member LLC is (most likely) a partnership. It could be an S Corp if they chose.
The issues you mentioned to put in the LLC agreement would probably be included in any well written partnership agreement.
The reason I discourage author partnerships is because of the relationship issues that are sure to arise over money, marketing, who does what, and who gets paid how much. A good partnership agreement would spell all that out, but there are relationship issues that are difficult to foresee and the partnership is like marriage. Your partner can spend the partnerships money or obligate you to debt, just like in marriage!
The tax return for a partnership (even husband and wife) is significantly more complicated than a sole proprietorship. For many years now the IRS has allowed a married couple to file as a sole proprietorship.