A partnership is defined as two or more individuals “carrying on an association as co-owners of a business for profit.” The income from the business is treated as the personal income of the owners, much like a sole proprietorship. A partnership agreement defines the structure for allocating income, assets, and responsibilities of the business. For this reason, a written agreement prepared by an attorney is recommended.
The disadvantages of a partnership are similar to those of a sole proprietorship. In this form of ownership, there is unlimited liability. The debts and legal obligations of the business are the debts and legal obligations of the partners so it is possible that the owners could lose their personal assets to satisfy the obligations of the business. In addition, disposing of a partner’s interest in the event of a partnership breakup or the illness or death of a partner can be complex.
In addition to partnerships, there are other ways to organize a business. An accountant can help you determine the best form of ownership for an individual business.