A partnership exists if two or more people choose to create and manage a business together, as well as to divide profits amongst themselves.
Partnerships are similar to Sole Proprietors as they are bound by the same regulations and they are easy to establish.
It is advisable to establish a formal contract known as a Partnership Agreement, which helps to eliminate the occurrence of potential problems and disagreements.
Partnerships are separated into categories:
- a General Partnership and
- a Limited Partnership.
With regard to a General Partnership, every partner is responsible for any debt that the business incurs. A partner receives a percentage of the profits after taxes. A General Partnership can also be given an Assumed name or also a DBA. One can apply for a Certificate of Assumed Name at the Clerk’s office in the county that the business is located.
With regard to a Limited Partnership, there are two types of partners, a general partner and a limited partner. A general partner of a Limited Partnership has the same rights, power, and limitations as a partner in a General Partnership. As long as the Partnership Agreement does not state otherwise, a General Partner can accept funds, as well manage such funds. A limited partner can only receive a percentage of the business’ profits as specified by the Partnership Agreement. Furthermore, a limited partner typically has no say in the management of the business. Limited partners are also registered with the proper authorities.
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An American corporation is a legal entity, which has power, privileges, and responsibilities, independent of the rights and responsibilities of the person or people who form the corporation.
A Limited Liability Company (LLC) is a legal entity, which may be treated as a partnership for purposes of taxation, while enjoying the limited liability of a corporation.