A partnership is a type of business structure where two or more individuals come together to share ownership. Each partner contributes towards the business which might include skills, knowledge, labor, finances, or property. In return, each individual shares the profits and losses of the business. All partners are involved in the day-to-day running of the business unless a limited partnership is established. There are various types of partnerships including general partnerships, limited partnerships, and limited liability partnerships. They all have different implications when it comes to responsibility, liability and taxation.
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1. What is a general partnership?
A general partnership is the simplest form of a partnership. Here, all partners share equal responsibility in managing the business and are personally liable for the company’s debts and obligations.
2. How does a limited partnership work?
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In a limited partnership, one or more partners are general partners who manage the business and bear full personal liability while other partners are limited partners who invest capital but don’t participate in day-to-day management and their liability is limited to their investment.
3. What is a limited liability partnership?
A limited liability partnership, often used by professionals like lawyers and accountants, is a partnership where all partners are protected from personal liability for business debts and from wrongdoing by the other partners.
4. How is a partnership established?
A partnership is established when two or more individuals agree to go into business together. While verbal agreements can constitute a partnership, it’s recommended to have a written partnership agreement to clearly outline each partner’s rights and responsibilities.
5. How are profits and losses shared in a partnership?
In a partnership, profits and losses are typically shared equally among the partners. However, the partnership agreement can dictate a different distribution, which does not have to be based on the proportion of capital contributions.