Explanation:Partnerships are like sole proprietorships in that no legal entity must be established. A partnership is established as soon as two or more people agree to go into business together. This is considered a general partnership because all the partners running the operations of the business share the risk and liability. A general partnership only has general partners also called unlimited partners.These general partners split the income and loss of the partnership based on their partnership percentage. For instance, a partner who owns 33% of a partnership would receive 33% of the income or 33% of the loss for the year. Each partner reports this income or loss on his personal income tax return. This is why a partnership is considered a flow-through entity. The income or loss flows through the business to the individual.
In a nutshell:
- 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.
- Professionals like doctors and lawyers often form a limited liability partnership.
- There may be tax benefits to a partnership compared to a corporation.