A general partnership is an association of two or more people who conduct a business together in order to earn a profit. A partnership must have at least two owners but may have an unlimited number of owners. A general partnership exists if someone can establish that you are in business with someone else, there is very little formality involved. Like a sole proprietorship, the owners of a partnership are one in the same and are personally liable for the business.
A person who is not formally included in the partnership may still be considered a partner. This type of partnership is known as a partnership by estoppel. If a partnership is allowed to use a person’s name, that person cannot deny being a partner.
For tax purposes, all profits and losses are passed through to the partners and are divided according to what the partners have agreed to in their agreement. Partners report their business profits and losses on their personal income tax returns.
A disadvantage of having a partnership is the liability that comes along with it. Each partner is liable for their own actions, the actions of the other partners, and for the actions of the employees. There are two types of liabilities: joint liability and several liability. Joint liability is where partners can be sued as a group and several liability means each partner is individually liable. Partners can be both jointly and severally liable for the partnership.
When forming a partnership, one must be sure that all terms are agreed upon and signed in a contract.