If you run a business for profit with someone else, then you might be deemed to be part of a general partnership (call it “partnership” for short). You don’t need to sign or fill out any paperwork to get classified as a partnership.
There are tax benefits to forming a partnership. Generally, there is one level of tax, unlike corporations which have multiple levels of tax. Running a partnership is also more flexible than a corporation. The partnership has virtual carte blanche to divide up management responsibilities.
Beware though: getting into a partnership might be more than you bargain for.
Like a sole proprietorship, you have unlimited liability. Not only that, but you are also responsible for your partner’s obligations as well. If your partner puts your company in debt, you are both responsible. If he can’t pay, then it might fall on you to pay your creditors.
Limited partnerships solve some of these problems. By going through a more formal setup process and more costly managing structure, the tradeoff is that limited partners are protected from unlimited liability. The general partners, however, have unlimited liability (and you are required to have at least one general partner). Since corporations and LLCs have limited liability, you’ll often see corporations or LLCs as general partners. In California, you’ll need to fill a form LP-1.
Partnerships are popular with professional service providers. Consult a lawyer to see if a partnership might work for you.
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