The partnership

Let’s uncover what partnerships are and the advantages and disadvantages thereof. At times, two or more people want to join forces in owning a business. In these cases, a partnership may be formed. According to the Uniform Partnership Act (UPA), a partnership is an “association of two or more persons to carry on as co-owners of a business for profit” (National Conference of Commissioners on Uniform State Laws 2014).

A partnership may be formed between two individuals or among three or more individuals through written contracts called articles of partnership. Although contracts will vary, they typically include:

• the partnership’s name
• the partners’ and officers’ names
• the intentions or purposes of the partnership
• the amount and form of contributions (e.g., money and real estate) from each partner
• the length of the partnership
• procedures to add and eliminate partners
• how profits or losses will be divided among the partners
• the degree of management authority each partner will have
• the designation of which partners, if any, are entitled to salaries
• how partnership affairs will be handled if a partner dies or is disabled.
• profits are shared among the partners, known as general partners, according to the conditions laid out in the partnership contract. Profit from a partnership is taxed as part of each partner’s personal income.

Liability

Similar to sole proprietors, partners have unlimited liability. This means that, together, they are liable for the entire debt of the partnership as outlined in the partnership contract.

Dissolving a partnership

Dissolution of a partnership can result from the following:

• a partner’s withdrawal
• the entry of new partners
• a partner’s death
• a partner’s bankruptcy
• a partner’s incapacity or misconduct
• the business goals becoming obsolete.