By Dylan Mathwig and Shane Trovalli
What Is a Partnership?
A business that has two or more owners who agree to share profits and are liable for any debts or losses.
Well Known Examples:
Location: Cupertino, California
Location: Seattle, Washington
Location: Mountain View, California
Ben and Jerry's
Location: Burlington, Vermont
The advantage for these limited partners is that they are not personally liable for business debts.
Advantages and Disadvantages
two heads (or more) are better than one
your business is easy to establish and start-up costs are low
more capital is available for the business
you’ll have greater borrowing capacity
high-calibre employees can be made partners
there is opportunity for income splitting, an advantage of particular importance due to resultant tax savings
partners’ business affairs are private
there is limited external regulation
it’s easy to change your legal structure later if circumstances change.
the liability of the partners for the debts of the business is unlimited
each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
there is a risk of disagreements and friction among partners and management
each partner is an agent of the partnership and is liable for actions by other partners
- if partners join or leave, you will probably have to value all the partnership assets and this can be costly.
Profits and Losses
Losses- If a Partnership company fails, all partners have to split the losses and equally pay back their debts. Amount of debt can be determined by number of partners and amount of debt owed.
Generally, the IRS does not consider partnerships to be separate from their owners for tax purposes; instead, they are considered "pass-through" tax entities. This means that all of the profits and losses of the partnership "pass through" the business to the partners, who pay taxes on their share of the profits (or deduct their share of the losses) on their individual income tax returns. Each partner's share of profits and losses is usually set out in a written partnership agreement.
McNair, Frances, and Edward E. Milam. "The limited liability company: an idea whose time has come." Management Accounting [USA] Dec. 1994: 30+. General OneFile. Web. 22 Sept. 2014.