Doing Business As...Partnership

Partnerships have been around a long time. When a business has two or more owners, they can’t run as a sole proprietor. The law defaults them to a partnership in the absence of another entity selection. Any legal business entity can be a partner in a partnership (Individual, LLC, Corporation, etc.)

Every partnership should have articles of organization and an operating/partnership agreement in place and many States require both to register.

Advantages of partnerships include relative ease of formation, additional resources (more minds and wallets at work), pass-through taxation and deductible losses, and no formal termination or dissolution.

Disadvantages include unlimited liability of general partners, issues with the continuity of the business (death or bankruptcy of a partner may terminate the partnership), payroll taxes on profits allocated to general partners and the need for trust and understanding between partners.

Partnerships come in different forms. There are generally two types of partnerships, general and limited partnerships.

A general partnership is made up of owners who are each fully liable for the liabilities of the partnership. This is essentially the same a sole proprietorship but you have two or more minds running the business.

Partners in a general partnership are called general partners and they each own a percentage interest of the profits and losses and assets and capital of the business. Every partnership must have at least one general partner. General partners are normally involved in the day to day operations of the business. Profits allocated to general partners are normally subject to self-employment taxes.

A limited partnership is made up at least one general partner and limited partners. General partners were described above. Limited partners do not participate in the operation of the partnership but have merely invested in a share of the profits and losses and assets and capital of the partnership. In exchange for not participating in the operation of the partnership, their liability is limited to the amount of their investment in the partnership.

While partnerships have been sent back stage while the LLC has taken the spotlight, they are still useful and beneficial in business. Famous partnerships have included Warner Brothers, McDonald’s (pre-Ray Kroc), Hewlett Packard, The Wright Brothers, and Scrooge and Marley.  After experiencing growth, many partnerships will choose a different entity. While not a business entity, marriages are also forms of partnerships and require a legal termination (divorce) if the partnership wishes to terminate.

Today, partnerships are often used where multiple businesses join together as partners for a project. Investment firms also create limited partnerships around an investment idea and investors purchase a limited interest