Partnerships

A partnership is a legal business structure that is closely related to a sole proprietorship, except for the fact that the business has more than one owner.

A Business Partnership

The partnership structure is like a sole proprietorship in that the business does not need to legally prepare applications and documents like a corporation or limited liability corporation. A partnership business can simply hang their sign and open their door for business like a sole ownership business can. Similarly, too a partnership is responsible for all its business dealings and debts. Should the business lose money or default on debts, those parties who own the business are liable for those debts and losses. While the autonomy is often worthwhile, those in a partnership business need to be especially communicative and collaborative in order to assure smooth sailing.

A Limited Partnership

A limited partnership is completely different from a regular partnership. Often limited partnerships are entered into between a business owner and a person willing to offer a significant investment toward the business. This investor interest is the limited partner side of the business. Limited partnerships generally give the business owner autonomy regarding daily operations and most decisions, while the investment partner has limited responsibilities that should be carefully understood between the parties.

An advantage to a limited partnership is the investment capital that can be immediately available to a new business.

Advantages of a Partnership

Partnerships give business owners the opportunity to make their own decisions and often can be beneficial for businesses who need a number of varying kinds of experts in their field.

Disadvantages

Dual, or multiple, ownership in a business can often lead to conflicts in interest. Miscommunication with clients and vendors can lead to issues with outside parties in which all partners are held responsible.

Partnerships and Taxes

A business partnership is required to handle its taxes like a sole proprietorship. Legally, these businesses are referred to as “pass-through entities.” The business owners in a partnership take on the responsibility for contributing to Social Security and Medicare taxes for themselves and any employees. Owners earn money on profits from their business. It is these earnings that they must report on their personal income taxes. Should the business suffer losses, they report these, instead.

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