Partnerships

In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners. The partners should have a written legal agreement that sets forth minimally, each partner’s contributions of time and capital, how decisions will be made, how profits will be shared, how disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and/or what steps will be taken to dissolve the partnership when needed. Yes, it is hard to think about a "break-up" when the business is just getting started, but many partnerships split up during times of crisis and, unless there is a defined process, even greater problems can result.

Advantages of a Partnership

Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. The profits from the business flow directly through to the partners' personal tax returns. With more than one owner, the ability to raise funds may be increased. Prospective employees may be attracted to the business, if given the incentive to become a partner. The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

Partners are jointly and individually liable for the actions of the other partners.
Profits must be shared with others. Since decisions are shared, disagreements can occur. Some employee benefits are not deductible from business income on tax returns. The partnership may have a limited life; it may end upon the withdrawal or death of a partner.
Types of Partnerships

General Partnership

Partners divide responsibility for management and liability, as well as the shares of profit or loss, according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

Limited Partnership and Partnership with limited liability

"Limited" means that most of the partners have limited liability (to the extent of their investment), as well as limited input regarding management decisions, which generally encourages investors for short term projects, or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than forming a general partnership.

Joint Venture

This entity acts like a general partnership, but is formed for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such, and distribute accumulated partnership assets upon dissolution of the entity.

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