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Definition

partnership

A partnership is an unincorporated business owned and operated by two or more individuals.

In a partnership, all profits and losses pass through to partners and are reported on their individual tax returns. The partnership is not considered a separate entity for tax purposes and, as such, is not taxed. As a rule, partners share liability for all debts of the partnership and the outcome of its actions.

There are three main types of partnership business structures. In a general partnership, all labor, profits and liabilities are normally shared equally among partners; if a different arrangement is desired, the details should be documented in a legally-binding agreement signed by all partners. A limited partnership can protect the private assets of partners and restrict partner input on business decisions. A joint venture is a special-purpose temporary version of the general partnership.

The U.S. Small Business Administration strongly recommends that partnerships draft agreements whose stipulations should include:

  • How profits, labor and liabilities will be divided among partners.
  • How future business decisions will be made.
  • How disputes will be resolved.
  • How partners will be brought in or bought out.
  • How the partnership will be dissolved.

See also: sole proprietorship, C corporation, S corporation

This was last updated in December 2015

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