PARTNERSHIP

DEFINITION
A partnership is where two or more individuals join together to run a business venture.  Each of the individual partners has ownership of company assets and responsibility for liabilities, as well as authority in running the business.  The authority of the partners and the way in which profits or losses are to be shared is usually controlled by the partnership agreement. 

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 Partnerships are formed when two or more people join together to conduct business.  In essence, a partnership is like a "marriage."  All partners are individually responsible for the obligations of the business and for the actions of their partners.  Although not required, a written partnership agreement is strongly recommended to set forth the rights and responsibilities of each partner.

Even though the partnership is recognized as an entity separate from its owners, it does not pay income taxes.  Instead, it computes its annual taxable income or loss.  Each partner must then report his or her share of the partnership's income, gains, losses, expenses, and credits on their person income tax return in much the same way as as if the business were being operated as a sole proprietorship.  A partnership is also like a sole proprietorship in that all of the partners are jointly liable for the debts and obligations of the business.  Creditors can look to the assets of any one of the partners to fulfill all of the obligations of the business.

You may want to consider this structure if you have two or more owners and are looking for something easy to start and operate.  You probably want to pass on this structure if you do not want your personal belongings (called assets) at risk.  Also, the fact that a partner might be able to legally enter into agreements on your behalf can be an extreme liability to say the least.