Partnership is a business owned by?

What Is a Partnership?

A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits.

There are several types of partnership arrangements. In a general partnership, all partners share liabilities and profits equally. In other types of partnerships, profits may be shared in different percentages or some partners may have limited liability. Partnerships may also have a "silent partner," in which one party is not involved in the day-to-day operations of the business.

The type of partnership that business partners choose will depend on how they want to manage day-to-day operations, who is willing to be financially liable for the business, and how they want to pay taxes.

Key Takeaways

<code>A partnership is an arrangement between two or more people to oversee business operations and share its profits and liabilities.
In a general partnership company, all members share both profits and liabilities.
 
In other partnership structures, some partners may share a smaller percentage of the profits but not assume any liability for the business.
 
Professionals like doctors and lawyers often form a limited liability partnership.
 
There may be tax benefits to forming a partnership instead of a corporation. </code>

Partnership

Investopedia / Matthew Collins

Types of Partnerships

In a broad sense, a partnership can be any endeavor undertaken jointly by multiple parties. The parties may be governments, nonprofits enterprises, businesses, or private individuals. The goals of a partnership also vary widely.

Within the narrow sense of a for-profit business undertaken by two or more individuals, there are three main categories of partnership: general partnership, limited partnership, and limited liability partnership.

General Partnership

In a general partnership, all parties share legal and financial liability equally. The individuals are personally responsible for the debts the partnership takes on. Profits are also shared equally. The specifics of profit sharing should 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 Partnership

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.1

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 Partnership

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.1

A limited liability limited partnership is a limited partnership that provides a greater shield from liability for its general partners. This is not a common type of partnership.