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Posted 17/10/2016 in Category 1

What is Partnership company or Business means?

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What is Partnership company or Business means?

Here we explains Partnership in detail

A partnership involves two or more people (up to 20, with some exceptions) going into business together with a view to making a profit. In various countries, it is ruled by various company laws

There are two types of partnership – general and limited.

A general partnership is where all partners participate to some extent in the day-to-day management of the business.

A limited partnership is one formed by up to 20 people. It has at least one general partner who controls the company’s day-to-day operations and is personally liable for business debts, and passive partners called limited partners.

A limited partner contributes a defined amount of capital to the business but is not otherwise liable for its debts or obligations. 


  • Simple and inexpensive to set up.
  • Minimal reporting requirements.
  • Shared control and management with other partners.
  • A partner’s share of the business’s tax losses may be offset against other personal income, subject to certain conditions.
  • More opportunities for tax planning (such as income splitting between family members) than that of a sole trader.
  • Relatively easy to dissolve the partnership or to resign and recover your share.
  • Partners are not employees. Superannuation contributions and workers’ compensation insurance are not payable for partners.


  • A partnership is not a separate legal entity. Each partner is fully responsible for debts and liabilities incurred by other partners – with or without their knowledge.
  • Potential for disputes over profit sharing, administrative control and business direction.
  • Changes of ownership can be difficult and generally requires a new partnership to be established.

Other factors to consider

Partnership agreement (deed)

Before entering into a partnership it is advisable to have a lawyer prepare a formal agreement outlining:

  • each partner’s role and level of authority
  • each partner’s financial contribution
  • a procedure for resolving disputes
  • a procedure for ending or resigning from the partnership.

It is important to have a formal agreement because personal liability is unlimited for each partner.

You will be held liable for any shortfall if the business fails and a partner can’t afford to pay their share of any debts. You are also jointly responsible for any debts your partner incurs, with or without your knowledge.

If there is no agreement in place, each partner is deemed to own equal shares of each asset.

How Does a Partnership Pay Income Taxes?

The partners are taxed from the income (or loss) of the partnership on their personal income tax return, and the partnership files an information return  with the IRS.

Multiple-member limited liability companies (LLCs) file income taxes as a partnership.

Check with your state's secretary of state to determine the requirements for registering your partnership in your state.

Types of Partners in a Partnership

Depending on the type of partnership and the levels of partnership hierarchy, a partnership can have several different types of partners. This article on different types of partners explains the difference between: 

  • General partners and limited partners. General partners participate in managing the partnership and have liability for partnership debts. Limited partners invest but do not participate in management. 

  • Equity partners and salaried partners.  Some partners may be paid as employees, while others have only a share in ownership. 

  • The different levels of partners in the partnership. For example, there may be junior and senior partners. 

Types of Partnerships

 Before you start a partnership, you will need to decide what type of partnership you want. You may have heard the terms:

  • A general partnership is composed of partners who participate in the day-to-day operations of the partnership are who have liability as owners for debts and lawsuits. There may also be limited, partners

  • A limited partnership has one general partner who manages the business and one or more limited partners who don't participate in the operations of the partnership and who don't have liability.

  • A limited liability partnership is similar to the limited partnership, but it may have several general partners. 

Forming a Partnership

Partnerships are usually registered with the state in which they do business, but the requirement to register varies from state to state. Partnerships use a partnership agreement to clarify the relationship between the partners, roles and responsibilities of the partners, and their respective shares in the profits or losses of the partnership.

It is relatively easy to form a partnership, but, as noted above, the business must be registered with the state where the partners do business. Depending on the state, you may have the choice of one or more of the types of partnerships mentioned above. Once you have registered with your state, you can then proceed to the other typical tasks in starting a business. 

The Importance of a Partnership Agreement

When a partnership is formed, one of the first acts of the partners should be to prepare and sign a partnership agreement. This agreement describes all the responsibilities of the partners, sets out each partner's distributive share in profits and losses, and answers all the "what if" questions about what happens in a number of typical situations. 

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