This Article On What Is A Partnership And Types Of Partnerships In Business
A partnership is a business where two or more people share in the ownership and are called “partners” or “members.”
- Each partner contributes to all aspects of the business
- This is including money, property, labor, and skill
- In return, each partner shares in the profits and losses of the business
- To form partnerships, the business must be registered with the state
- The partnership’s legal name can be used to conduct business or a DBA can be filed to conduct business
Partnerships are governed by its partnership agreement.
Example Of Partners In A Business
For example, one partner might provide the financial backing for the business, and another partner might provide a special skill:
- Partnerships gains and losses are split among the partners according to the partnerships agreement
- The agreement may provide that an older, financially established member who funds the business is entitled to a greater percentage of the partnership’s gains
- A younger partner who provides the labor for the enterprise would be entitled to a somewhat smaller percentage of partnerships gains
- In the event of a business loss, the partners share the loss in the same proportion as the partnerships agreement provides
In this article, we will discuss and cover the types of partnerships in a business structure.
Taxes And Partnerships
The partnerships itself is not a taxable entity. Instead, the business “passes through” any profits or losses to its partners
- Partners include their respective shares of the partnership’s income or loss on their personal tax returns and pay taxes at their individual tax rate
- The partnerships must report its profit or loss on IRS Form 1065 and each partner’s share of the profit or loss on IRS Schedule K-1
- Each partner then uses this information to report his or her share of the partnership’s net profit or loss (and any special deductions and credits) on his or her IRS Form 1040, Schedule E
However, the partnership itself does not pay any tax on the partnership’s income.
What Is A Partnership: Types Of Partnerships
A partnership is customized to suit the needs of each partner. A partnership can be changed as time passes. A partnership can also be dissolved. It is best to have an attorney to represent the partnership throughout its existence.
