A partnership is a type of business organization. Two or more individuals own and operate this business organization. These individuals are partners. Furthermore, it is unincorporated. Although it is not considered a legal entity separate from its owners, the details of this arrangement are stipulated in a contract. Call that contract a partnership agreement. This includes both profit and loss sharing and decision-making rights.
There are different types of business partnerships, including general partnerships and limited partnerships. Depending on the type of arrangement, the entity may be privately-owned or publicly-owned. The partners may have limited liability or unlimited liability for the activities and obligations of the business.
When there is a change in ownership or a change to the original partnership agreement, this relationship dissolves. If any partner dies or leaves the organization, then the other partners must dissolve the entity and create a new partnership. When any changes are made to the original contract, the partners must dissolve the entity and create a new organization.
There are several advantages to having this kind of entity. Business partnerships are easy to establish and are easy to dissolve. In addition, they give the partners a significant amount of operational freedom and flexibility. Also, partnerships do not pay corporate income tax (taxes are paid by the partners at the individual level). And as opposed to a sole proprietorship, a partnership can utilize the capital, entrepreneurial skills, and managerial expertise of more than one individual.
The disadvantages include the following: