2. Partnership

2. Partnership
A partnership is the relationship between two or more persons who join together to carry on a
trade or business with each person contributing money, property, lobar, or skill, and each
expecting to share in the profits and losses of the business.
Partnership profits are not taxed to the partnership. Each partner must take into account his or
her distributive share of partnership profits (losses) on his or her own income tax return
(whether distributed or not). The business files a Form 1065 for its tax years, but it is mainly
an information return. Each partner’s distributive share is usually included in figuring
earnings from self-employment.
Partnerships can have General and Limited Partners.
• General Partners are active in the control of the business. They share
financing, decision-making, and management responsibilities according to
terms spelled out in the partnership agreement. They also share in the
liability.
• Limited Partners are generally taken on by a company to raise capital for
the business. As long as the limited partners do not participate in the
management or control of the business, they do not share in the liability.
Limited partnerships are by be contractual agreement spelling out the terms
for the capital infusion, return on investment, and exit terms.