Partnerships

Definition

A partnership is a business structure where two or more individuals share ownership and the responsibilities of running the company. Each partner contributes to all aspects of the business, including money, property, labor, or skill, and shares in the profits and losses of the business.

5 Must Know Facts For Your Next Test

1. Partnerships do not pay income tax; instead, profits and losses are passed through to partners who report them on their personal tax returns.
2. There are three main types of partnerships: general partnerships (GP), limited partnerships (LP), and limited liability partnerships (LLP).
3. In a general partnership, all partners have unlimited liability for the debts and obligations of the business.
4. Limited partners in an LP have restricted liability up to the amount they invested but typically do not participate in managing the business.
5. An LLP provides each partner some degree of liability protection from actions taken by other partners.

Review Questions

Related terms

Sole Proprietorship: A business owned and operated by one person with no distinction between the owner and the business entity.

Corporation: A legal entity that is separate and distinct from its owners, providing limited liability to its shareholders.

Owner's Equity:

The residual interest in the assets of a company after deducting liabilities; also known as net assets.