What is a Partnership?

A partnership is a type of business structure where two or more individuals or entities come together to carry on a business for profit. Partnerships are a popular choice for small businesses due to their ease of formation, flexibility in management, and potential tax benefits.

Types of Partnerships

There are three main types of partnerships:

• General Partnership: In a general partnership, all partners share equally in the profits, losses, and management responsibilities of the business.
• Limited Partnership: In a limited partnership, there are both general partners who manage the business and limited partners who are passive investors.
• Limited Liability Partnership (LLP): An LLP offers limited liability protection to partners, shielding them from personal liability for the debts and obligations of the business.

Key Characteristics

Some key characteristics of a partnership include:

• Shared profits and losses
• Equal management responsibilities
• Flexible decision-making process
• Partnership agreement outlining rights and obligations
• Pass-through taxation, where profits and losses are reported on the partners' individual tax returns

Partnerships are governed by state laws and often require a partnership agreement to outline the terms of the partnership. It's important for partners to have a clear understanding of their roles, responsibilities, and liabilities before entering into a partnership.