Partnership

A partnership is two or more people voluntarily operating a business as co-owners for profit.

Partnerships make up more than 8 percent of all businesses in the United States and more than

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11 percent of the total revenue.  Like the sole proprietorship, the partnership does not

distinguish between the business and its owners. There should be a legal agreement that “sets forth how decisions will be made,

profits will be shared, disputes will be resolved, how future partners will be admitted to the

partnership, how partners can be bought out, and what steps will be taken to dissolve the

partnership when needed.”

There are two types of partnerships. In the general partnership, all the partners have unlimited

liability, and each partner can enter into contracts on behalf of the other partners.

A limited partnership has at least one general partner and one or more limited partners whose

liability is limited to the cash or property invested in the partnership. Limited partnerships are

usually found in professional firms, such as dentists, lawyers, and physicians, as well as in oil

and gas, motion-picture, and real-estate companies. However, many medical and legal

partnerships have switched to other forms to limit personal liability.

Before creating a partnership, the partners should get to know each other. According to Michael

Lee Stallard, cofounder and president of E Pluribis Partners, a consulting firm in Greenwich,

Connecticut, “The biggest mistake business partners make is jumping into business before

getting to know each other…You must be able to connect to feel comfortable expressing your

opinions, ideas and expectations.”

Partnerships: A Summary of Characteristics

Liability Taxes Advantages Disadvantages

Unlimited for general partner; limited partners risk only their original investment.

Individual taxes on business earnings; no income taxes as a business

Owner(s) retain all profits

Unlimited for general partner;

limited partners risk only their

original investment. Individual

taxes on business earnings; no

income taxes as a business

Unlimited financial liability

for general partners

Interpersonal conflicts

Financing limitations

Management deficiencies

Partnership terminated if

Liability Taxes Advantages Disadvantages

Easy to form and dissolve

Greater access to capital

No special taxes

Clear legal status

Combined managerial skills

Prospective employees may be

attracted to a company if given

incentive to become a partner

one partner dies,

withdraws, or is declared

legally incompetent

Shared decisions may lead

to disagreements

 

 

 

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