Partnership and Limited Partnership
A partnership is a business structure formed by two or more individuals who collaborate and contribute resources to operate a business together. Partnerships are characterized by their simplicity, as they lack the formalities and paperwork required by corporations or LLCs. There are two main types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners share equal responsibility for the business's management and financial obligations. Limited partnerships, on the other hand, allow for a distinction between general partners, who actively manage the business, and limited partners, who contribute capital but have limited involvement in day-to-day operations.
One key feature of partnerships is the pass-through taxation, where business profits and losses are passed through to the individual partners' tax returns. This eliminates the issue of double taxation faced by corporations, enhancing the overall tax efficiency of the partnership structure. While partnerships provide flexibility and are relatively easy to establish, they also come with the challenge of unlimited personal liability for general partners. This means that personal assets of the partners can be at risk to satisfy the business's debts and legal obligations. Despite this potential drawback, partnerships are a popular choice for small businesses, professional practices, and ventures where shared management and decision-making are valued.