Why do people form partnerships

The specifics of profit sharing will almost certainly be laid out in writing in a partnership agreement. When drafting a partnership agreement, an expulsion clause should be included, detailing what events are grounds for expelling a partner. Limited liability partnerships LLPs are a common structure for professionals, such as accountants, lawyers, and architects. This arrangement limits partners' personal liability so that, for example, if one partner is sued for malpractice, the assets of other partners are not at risk.

Some law and accounting firms make a further distinction between equity partners and salaried partners. The latter is more senior than associates but does not have an ownership stake.

They are generally paid bonuses based on the firm's profits. Limited partnerships are a hybrid of general partnerships and limited liability partnerships. At least one partner must be a general partner, with full personal liability for the partnership's debts. At least one other is a silent partner whose liability is limited to the amount invested. This silent partner generally does not participate in the management or day-to-day operation of the partnership.

Finally, the awkwardly-named limited liability limited partnership is a new and relatively uncommon variety. This is a limited partnership that provides a greater shield from liability for its general partners. There is no federal statute defining partnerships, but nevertheless, the Internal Revenue Code Chapter 1, Subchapter K includes detailed rules on their federal tax treatment. Partnerships do not pay income tax. The tax responsibility passes through to the partners, who are not considered employees for tax purposes.

Individuals in partnerships may receive more favorable tax treatment than if they founded a corporation.

That is, corporate profits are taxed, as are the dividends paid to owners or shareholders. Partnerships' profits, on the other hand, are not double-taxed in this way. The basic varieties of partnerships can be found throughout common law jurisdictions, such as the United States, the UK, and the Commonwealth nations.

There are, however, differences in the laws governing them in each jurisdiction. The U. However, every state except Louisiana has adopted one form or another of the Uniform Partnership Act ; so, the laws are similar from state to state.

The standard version of the act defines the partnership as a separate legal entity from its partners, which is a departure from the previous legal treatment of partnerships. Other common law jurisdictions, including England, do not consider partnerships to be independent legal entities. A partnership is a way of structuring a business that involves two or more individuals the partners. It involves a contractual agreement the partnership agreement between all of the partners that set the terms and conditions of their business relationship, including the distribution of ownership, responsibilities, and profits and losses.

Partnerships outline and clearly define a business relationship and responsibility. Unlike LLCs or corporations, however, partners are personally held liable for any business debts of the partnership, which means that creditors or other claimants can go after the partners' personal assets. Because of this, individuals who wish to form a partnership should be extremely selective when choosing partners. Partnerships have several benefits. They are often easier to set up than LLCs or corporations and do not involve a formal incorporation process through a government.

This has the added benefit of not being subject to the same rules and regulations that apply to corporations and LLCs. Partnerships also tend to be more tax-friendly. In limited partnerships LPs , there are general partners who maintain operations of the firm and have full liability, whereas limited silent partners, who are often passive investors or otherwise not involved in day-to-day operations, enjoy limited liability.

In an LLP, partners are not exempt from liability for the debts of the partnership, but they may be exempt from liability for actions of other partners. The partnership itself does not pay business taxes. Strategic partnerships have been around forever. They usually include a formal agreement between two parties to pursue mutually beneficial objectives.

There may or may not be a contract involved, but both parties clearly understand the objectives of the alliance and pledge to work together to achieve the desired results. Here are a few examples of how such strategic relationships can help your business.

Perhaps the most popular reason for entering into strategic partnerships is access to new markets and customers. By forming a strategic partnership, companies can service larger territories without investing in additional infrastructures or expanding their distribution network. Both companies are exposed to potential new customers and expand their territories without having to add stores or additional routes. This arrangement can also add value to both customer sets.

Visitors to the store can save time by not having to visit a coffee shop, and business owners get their office supplies automatically replenished by a company that is coming to the place of business on a regular basis anyway. Coffee giant Starbucks aggressively forms alliances with places like medical facilities, airports, and other locations to provide coffee service to its customers.

Visitors recognize the added value and appreciate the convenience of having brands they recognize readily available.

Tom is leaning toward accepting the offer. But when he finds out that he would be held responsible not only for the debts of the business but also the actions of his partner, he sours on the idea. He knows Todd has made some business decisions and deals that were a little on the sketchy side. Answer the question s below to see how well you understand the topics covered above.

This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times. Use this quiz to check your understanding and decide whether to 1 study the previous section further or 2 move on to the next section.

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