What Is a Partnership?

A part𒊎nership is a formal arrangement by two๊ or more parties to manage and operate a business and share its profits.

There are several types of partnership arrangements. In a general partnership, all partners share liabilities and profits equally. In other types of partnerships, profits may be shared in different percentages or some partners may have 澳洲幸运5官方开奖结果体彩网:limited liability. Partnerships may♛ also have a "silent partner," in which one party is nꦡot involved in the day-to-day operations of the business.

The type of partnership that business partners choose will depend on how they want to manage day-to-day o⛦perations, who is willing to be financially liable for the business, and how they wanℱt to pay taxes.

Types of Partnerships

In a broad sense, a partnership can be any endeavo෴r undertaken jointly by multiple parties. The parties may be governments, nonprofits enterprises, businesses, or private individuals. The goals of a partnership also vary widely.

Within the narrow sense of a for-profit business undertaken by two or more individuals, there are three main categories of partnership: 澳洲幸运5官方开奖结果体彩网:general partnership, limited partnership, and limited liability partnershi𒊎p.

General Partnership

In a general partnership, all parties share legal and financial liability equ⛄ally. The individuals are personally responsible for the debts the partnership takes on. Profits are also shared equally. The specifi💯cs of profit sharing should be laid out in writing in a partnership agreement.

Limited Liability Partnership

Limited liability partnerships (LLPs) are a common structure for professionals, such as accountants, lawyers, and architects. This arrangement limits partners' personal liability so that, for example, if one partner is sued for malpractice, the assets of other partners are not at risk.

Some law and accounting firms make a further distinction between equity partners and salaried partners. The latter is more senior than associates but does not have an ownership stake. They are generally paid bonuses based on the firm's profits.

Limited Partnership

Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At least one partner must be a general partner, with full personal liability for the partnership's debts. At least one other is a silent partner whose liability is limited to the amount invested. This silent partner generally does not participate in the management or day-to-day operation of the partnership.

Taxes and Partnerships

There is no federal statute defining partnerships, but the Internal Revenue Code (Chapter 1, Subchapter K) includes detailed rules on their federal tax treatment.

Partnerships are pass-through businesses, meaning the partnership itself does not pay income tax. The tax responsibility passes through to the individual partners, who are not considered employees for tax purposes.

Individuals in partnerships may receive more favorable tax treatment than if they founded a corporation. This is because corporate profits are taxed, as are the dividends paid to owners or shareholders. The profits from a partnership, on the other hand, are not double-taxed in this way.

Advantages and Disadvantages of Partnerships

Like any business structure, a partnership comes w🍌ith both benefits and drawbacks.

Most sole proprietors do not have the time or resources to run a successful business alone, and the startup stage can be the most time-consuming. A successful partnership can increase the chances that a business will launch successfully by 澳洲幸运5官方开奖结果体彩网:allowing partners to pool their resources and abilities.

澳洲幸运5官方开奖结果体彩网:Creating a partnership can also make the day-to-day operations of a business more manageable than they would be if only one person were running things. Partners to benefit from one another's labor, time, and expertise. Moreover, a shrewd partner can also ꦜprovide additional perspectives and insights that can help the business grow.

There is, however, risk in joining a partnership. In addition to sharing profits, the partners may also assume responsibility for any losses or debts from the other partners. There is also a higher chance of conflict or mismanagement. When the time comes to exit, it may be harder to reach an agreement about selling the business.

Partnerships by Country

The basic varieties of ﷽partnerships can be found throughout common law jurisdictions, such as the United States, the U.K., and the Commonwealth nations. There are, however, differences in the laws governing them in each jurisdiction.

The U.S. has no federal statute that defines the various forms of partnership. However, every state except Louisiana has adopted one form or another of the 澳洲幸运5官方开奖结果体彩网:Uniform Partnership Act, creating laws that are similar from state to state. The standard version of the act defin🍷es the partnership as a separate legal entity from its partners, which is a departure from the previous legal treatment of partnerships.

Other common law jurisdictions, including England, do not consider partnerships to be independent legal entities.

The Bottom Line

A partnership is a legal arrangement that allows two or more people to share responsibility for a business. Those partners share the ownership and profits, but they also share the work, responsibility, and potential losses. Partnerships are often seen as having more favorable tax treatment than corporations. A successful partnership can give a new business more opportunities to succeed, but a poorly-thought out one can cause mismanagement and disagreements.