Law & Accounting Offices of Stanley F. Bronstein
Scottsdale, AZ 85260
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A partnership is a for-profit business which is created by the association of 2 or more persons.
Many states define the business component broadly and because "persons" can include individuals, groups, LLCs, corporations and other entities, partnerships are highly adaptable and vary greatly in levels of complexity.
Normally, partners share in the profit and loss of the partnership. Partners are therefore jointly liable for the partnership's debts and assets.
In order to create a general partnership, it is generally not necessary to file any paperwork with the state in which it is located. To create a limited partnership ( LTD ), it is necessary to file paperwork in one or more states, depending on the particular situation.
Under state agency law, partners are personally liable for torts committed by the partnership and its agents. However, there is an exception for limited partnerships in which one general partner (or more) manages business operations and assumes personal liability for partnership debts. In this case, the other partners take no part in running the business and incur no liability beyond the monies and property they have already contributed and any further contractual obligation they may have to contribute as needed.
For tax purposes, on both the federal and state levels, a partnership is not a taxable entity. Partnership income is generally reported to the IRS on a IRS Form 1065 tax return and to the states on similar versions of that form. Partnership income is then taxable to the partners according to their share in the company's profits.
Due to the need to have a general partner, a limited partnership structure is not used as often as it was in the past. Under most circumstances, it is easier, more efficient and more effective to form a Limited Liability Company ( LLC ) instead. Some states have had tax provisions that, in the past, have made it more beneficial to form a limited partnership ( LTD ) rather than a LLC. Generally, these tax advantages are in the process of disappearing for a variety of reasons.
When you hire our firm, we can help you decide which entity structure is best for your particular needs.