Partnership
A business owned by two or more individuals.
A partnership is a business structure where two or more people share ownership, profits, losses, and management responsibilities. General partnerships are simple to form but expose all partners to unlimited liability. Limited partnerships (LPs) and limited liability partnerships (LLPs) offer some partners liability protection. Partnerships file Form 1065 but don't pay entity-level tax—profits pass through to partners' personal returns.
Example
Two accountants form a partnership, splitting profits 60/40 based on client origination—each reports their share of $200,000 total income on personal tax returns via Schedule K-1.
Why It Matters for Your Business
A well-structured partnership agreement prevents disputes over money, responsibilities, and exit terms—most partnership failures stem from unclear agreements.
Practical Tips
- •Always create a written partnership agreement covering profit sharing, decision-making, and dissolution terms.
- •Consider an LLP structure to protect individual partners from each other's liabilities.
Related Terms
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Accounts Reconciliation
Ensuring account balances match between different records.
Break-Even Point
The sales volume at which revenue equals costs.
Budget
A financial plan estimating income and expenses.
Financial Forecast
A prediction of future financial performance.
Capital Expenditure
Funds used to acquire or upgrade physical assets.
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