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A to Z of Partnerships in a Business

ArticleID 145  
Writer Isaac Thuku
Category Personal Article



A partnership is a single business where two or more people share profits and losses. It is an arrangement in which parties agree to cooperate in order to advance their mutual interests. Each partner contributes the necessities be it capital and labor and finally share the profits and losses of the business.


Basically, partnerships do not consist of more than twenty individuals. They can be between individuals, businesses, schools, organization and even the government. Partnership can exist within and across sectors, religions and political organizations. An alliance is formed when the government joins a partnership to achieve natural interests. In some cases, partnerships many cause conflict of interest. A good partnership business should have article of Partnership.


Partnerships exist in two categories, general and limited partners. General partners have an obligation of strict liability to third parties injured by the partnership. They nay also have joint liability or joint several liability. On the other hand, a silent partner is one who still shares in the profits and losses of the business but also involved in its management. Their association with the business is not publicly known. Silent partners provide capital when staring the business venture.


The general rule of thumb for all partnerships is that profits, liability and management duties are divided equally among partners. The most important thing is to document all this in a partnership agreement. Limited partnerships are a bit complex as they allow partners to have limited liability as well as limited input in key management decisions depending on members’ investment in the business.


Forming a partnership is not s easy as it may seem. After coming together with a common interest, members need to register the business. This is done through the Secretary of State’s office. After that a business name is established by using either the last names of the members or with a fictitious name. Partners need to obtain business licenses and permits which may vary from state to state.


Registration with IRS and local revenue authorities is important for obtaining a tax ID number or permit. It is a good practice to file annual information for income, deductions, gains and losses of the partnership. Partnership taxes include annual return of Income, Employment Taxes and Excise Taxes. Additional taxes may also arise in a partnership. They are Income Tax, Self-employment Tax and Estimated Tax. Members should be familiar with the schedule k-1 document issued for an investment in partnership. It is a tax document used to report your share of the partnership income, deductions and credits.


It is obvious that two heads are better than one. This makes partnerships ease to start and manage as a group. Starts up costs are low and labor can be shared to minimize production costs. Partnerships usually have more capital than sole businesses because every partner contributes a certain percentage.


It is true to say that every kind of business has its ups and downs but how they are handled will determine if its goals will be accomplished. The biggest fall for partnerships is mainly because of disagreements due to profits allocation and management reasons. Also every partner is liable for debts incurred by the business.


A to Z of Partnerships in a business
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