First, a partnership can be created by an express agreement or it can be created if the people are simply acting in a way that seems like a partnership. Second, the partners can be held responsible for the actions and business debts of the other partners. Third, all the assets of the business are personally owned by the partners. Fourth, there are two main types of partnerships: general partnerships, where all the partners share the profits and losses of the business; and limited partnerships, where the limited partners are not involved in the daily operations and are only responsible for losses up to the amount they contributed to the business. Fifth, partners are not considered employees of the business. Because of this, partners are not eligible for employment insurance if the business fails. Partners are not paid a salary, but they can take money from the business through personal drawings.
It is a good idea to put a partnership agreement in place because it will outline issues such as how the profits or losses will be divided among the partners, and it will describe any limits to the legal responsibility of the partners.
Being a partner in a partnership has several advantages and disadvantages, including important tax implications.
Advantages .
There are 3 main advantages to forming a partnership. First, a partnership allows two or more people to work together and bring different skills and resources to the business. Second, a partnership is fairly easy to establish. The actual registration of a partnership is not expensive or complicated. However, it is a good idea to decide how the partnership will be run and put it into a partnership agreement. Third, if the partnership suffers a loss but the partners have other employment income, the loss can be used to reduce their taxable income, thereby lowering the income tax payable by the partner.
Disadvantages .
There are 5 main disadvantages to forming a partnership.
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