For federal and state tax purposes, a partnership is not a taxable entity. The company`s income is taxable to shareholders in proportion to their share of the company`s profits. An association of two or more persons working in a commercial enterprise in which profits and losses are shared proportionately. The legal definition of a partnership is generally referred to as “a combination of two or more persons for the purpose of making a profit transaction as co-owners” (Revised Uniform Partnership Act § 101 [1994]). Early English commercial courts recognized a form of business known as Societas. The Societas provided for accounting between their business partners, an agency relationship between partners in which the individual partners could legally bind the partnership, and the individual liability of the partners for the debts and obligations of the company. As ordinary English courts recognized societas, the business form eventually evolved into a common law partnership. England enacted its Partner-ship Act in 1890, and legal experts in the United States drafted a Uniform Partnership Act (UPA) in 1914. Each State has adopted a form of UPA as its partnership status; However, some states have made changes to the UPA or passed the Revised Uniform Partnership Act (RUPA), which legal scholars issued in 1994.
Each partner participates directly in the profits of the organization and shares control of business operations. As a result of this profit sharing, the shareholders are jointly and severally liable for the company`s debts. A limited partnership must have one or more general partners who run the business and are personally liable for the debts of the partnership. While a partner can be both a limited partner and a general partner, there must be at least two different partners in a limited partnership at all times. A limited partner may lose its protection against personal liability if it participates in the management and control of the corporation, provides services to the corporation, acts as a general partner, or knowingly allows its name to be used in the corporation`s business. However, there are “safe havens” where it is not established that a sponsor has participated in the “control” of the partnership enterprise. Safe havens include consulting with the general partner in relation to the partnership business, acting as a contractor or employee of a general partner, or dissolving the limited partnership. If a limited partner carries out only one of the activities defined as safe havens, it is not considered a general partner with the associated potential liability.
n. a for-profit corporation owned by more than one person, each of whom is a “partner”. A partnership can be established by a formal written agreement, but can be based on an oral agreement or simply a handshake. Each partner invests a certain amount (money, assets and/or efforts) that sets an agreed percentage of ownership, is responsible for all debts and contracts of the partnership, although another partner has created the debt or entered into the contract, has a share in management decisions and has shares in profits and losses based on the percentage of the total investment. Often, a partnership agreement may provide for a specific division of management, investment shares, profits and/or purchase rights of a partner upon exit from the company or upon death. Each partner owes the other partners the obligation to fully disclose information relating to the company and cannot create business opportunities that legally belong to the company. A partnership operating under a business name must submit to the county or state a certificate of “conduct of business under a fictitious name,” informing the public of the names of the partners and the business address. A “limited partnership” limits liability for debts beyond the investment to “general partners” managers. Investor “limited partners” cannot participate in the management and are limited to certain percentages of profits. A partnership is different from a “joint venture” in which more than one investor is only involved for a specific short-term project and rapid distribution of profits.
Partnerships have traditionally been the most fragile trade agreements and are often dissolved and subject to litigation. But there are several million of them in the United States and, ironically, they are the preferred business unit of law firms. (See: Partner, General Partner, Silent Partner) There are different types of partnership agreements. In particular, in a partnership transaction, all shareholders share liabilities and profits equally, while in other partners, liability is limited. There is also the so-called “silent partner”, in which one party is not involved in the day-to-day affairs of the company. Typically, a partnership maintains separate accounting records, which typically include records of the partnership`s financial transactions and each partner`s capital contributions. The books must be kept at the partnership headquarters and each partner must have access to the books and be allowed to consult and copy them on request. If a partnership denies a partner access to the books, they usually have the right to obtain an injunction from a court to force the partnership to allow them to view and copy the books. Some States that have adopted rupa provide that a partner is jointly and severally liable for the debts and obligations of the company. However, before the creditor of a partnership can bring a judgment against an individual partner, certain conditions must be met, including the return of an unfulfilled enforceable title against the partnership.