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    What Is A Partnership

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    Darlene Sarcino
    A partnership is a formal arrangement between two or more parties to jointly manage and operate a business while sharing profits. There are different types of partnerships that determine how liability and profits are shared, such as general partnerships where all parties share equal liability and profits, and limited partnerships where at least one partner has limited liability. Partnerships do not pay taxes directly, but the tax responsibility passes through to individual partners.

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    What Is A Partnership

    Uploaded by

    Darlene Sarcino
    30 views2 pages
    A partnership is a formal arrangement between two or more parties to jointly manage and operate a business while sharing profits. There are different types of partnerships that determine how liability and profits are shared, such as general partnerships where all parties share equal liability and profits, and limited partnerships where at least one partner has limited liability. Partnerships do not pay taxes directly, but the tax responsibility passes through to individual partners.

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    What Is a Partnership

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    A partnership is a formal arrangement between two or more parties to jointly manage and operate a business while sharing profits. There are different types of partnerships that determine how liability and profits are shared, such as general partnerships where all parties share equal liability and profits, and limited partnerships where at least one partner has limited liability. Partnerships do not pay taxes directly, but the tax responsibility passes through to individual partners.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    30 views2 pages

    What Is A Partnership

    Uploaded by

    Darlene Sarcino
    A partnership is a formal arrangement between two or more parties to jointly manage and operate a business while sharing profits. There are different types of partnerships that determine how liability and profits are shared, such as general partnerships where all parties share equal liability and profits, and limited partnerships where at least one partner has limited liability. Partnerships do not pay taxes directly, but the tax responsibility passes through to individual partners.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
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    What Is a Partnership?

    A partnership is a formal arrangement by two or more parties to manage and operate a


    business and share its profits.

    There are several types of partnership arrangements. In particular, in a partnership


    business, all partners share liabilities and profits equally, while in others, partners
    have limited liability. There also is the so-called "silent partner," in which one party is not
    involved in the day-to-day operations of the business.

    How a Partnership Works


    In a broad sense, a partnership can be any endeavor undertaken jointly by multiple
    parties. The parties may be governments, non-profits enterprises, businesses, or private
    individuals. The goals of a partnership also vary widely.

    Within the narrow sense of a for-profit venture undertaken by two or more individuals,
    there are three main categories of partnership: general partnership, limited partnership,
    and limited liability partnership.

    In a general partnership, all parties share legal and financial liability equally. The
    individuals are personally responsible for the debts the partnership takes on. Profits are
    also shared equally. The specifics of profit sharing will almost certainly be laid out in
    writing in a partnership agreement.

    Limited liability partnerships 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 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.

    Finally, the awkwardly-named limited liability limited partnership is a new and relatively
    uncommon variety. This is a limited partnership that provides a greater shield from
    liability for its general partners.

    Special Considerations
    These basic varieties of partnerships can be found throughout common law
    jurisdictions, such as the United States, Britain, and the Commonwealth nations. There
    are, however, differences in the laws governing them in each jurisdiction.
    The US has no federal statute that defines the various forms of partnership. However,
    every state except Louisiana has adopted one form or another of the Uniform
    Partnership Act; so, the laws are similar from state to state. The standard version of the
    act defines 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.

    Taxes and Partnerships


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

    Partnerships do not pay income tax. The tax responsibility passes through to the
    partners, who are not considered employees for tax purposes.

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

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