In a Partnership, two or more people share ownership of a single
business. Like proprietorships, the law does not distinguish between
the business and its owners. The Partners should have a legal
agreement that sets forth how decisions will be made, profits will be
shared, disputes will be resolved, how future partners will be admitted
to the partnership, how partners can be bought out, or what steps will
be taken to dissolve the partnership when needed;. Yes, its hard to think
about a "break-up" when the business is just getting started, but many
partnerships split up at crisis times and unless there is a defined
process, there will be even greater problems. They also must decide up
front how much time and capital each will contribute, etc.
Types of Partnerships that should be considered:
General Partnership
Partners divide responsibility for management and liability, as well as the
shares of profit or loss according to their internal agreement. Equal
shares are assumed unless there is a written agreement that states
differently.
Limited Partnership and Partnership with limited liability
"Limited" means that most of the partners have limited liability (to the
extent of their investment) as well as limited input regarding
management decisions, which generally encourages investors for short
term projects, or for investing in capital assets. This form of ownership is
not often used for operating retail or service businesses. Forming a
limited partnership is more complex and formal than that of a general
partnership.
Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or
a single project. If the partners in a joint venture repeat the activity, they
will be recognized as an ongoing partnership and will have to file as
such, and distribute accumulated partnership assets upon dissolution of
the entity.
Federal Tax Forms for Partnerships
(only a partial list and some may not apply)
Form 1065: Partnership Return of Income
Form 1065 K-1: Partner's Share of Income, Credit, Deductions
Form 4562: Depreciation
Form 1040: Individual Income Tax Return
Schedule E: Supplemental Income and Loss
Schedule SE: Self-Employment Tax
Form 1040-ES: Estimated Tax for Individuals
Employment Tax Forms
Santos Associates, FEDERALLY AUTHORIZED TAX
PRACTITIONERS, can help you with your accounting, tax
and financial planning needs. Call today for an appointment &
consultation. We are not attorneys, we can refer competent council
upon request.
Partnership
ADVANTAGES of a Partnership
- Relatively little time or
expense required for creation
- No state paperwork required
for creation
- Most states do not impose a
fee for the privilege of existing
- No separate tax filing for the
business is required; instead
profits or losses of the
business are reported on the
partners' individual tax returns
DISADVANTAGES of a Partnership
- Partners are personally
responsible for the debts and
liabilities of the business
- Partners are typically
responsible for the business-
related actions of the other
partners
- Obtaining capital, through
such means as a bank loan,
can be more difficult as
lending institutions often
require a more formal entity
structure
