A partnership is an agreement between two or more people to share the profits of a business. The business may be carried on simultaneously by all the partners or by any one partner representing the others. Forming a partnership requires three elements:

• There must be two or more persons.
• The agreement should be for sharing the profits of the business.
• All partners must conduct business together, or none on behalf of the others.

As noted above, the partnership business doesn’t pay any income tax; the partners pay the taxes of the business, based on their share of the profits for a specific year.

The partners are taxed from the income (or loss) of the partnership on their personal income tax return, and the partnership files an information return (Form 1065) with the IRS.

Multiple-member limited liability companies (LLCs) file income taxes as a partnership.

Check with your state’s secretary of state to determine the requirements for registering your partnership in your state. Some states allow different types of partnerships, and there are different types of partners, based on their participation in the business and the type of partnership.

Depending on the type of partnership and the levels of partnership hierarchy, a partnership can have several different types of partners. This article on different types of partners explains the difference between:

• General partners and limited partners. General partners participate in managing the partnership and have liability for partnership debts. Limited partners invest but do not participate in management.
• Equity partners and salaried partners. Some partners may be paid as employees, while others have only a share in ownership.
• The different levels of partners in the partnership. For example, there may be junior and senior partners. These partnership types may have different duties, responsibilities, and levels of input and investment requirements.

Types of Partnerships in Purnea, Bihar

Before you start a partnership, you will need to decide what type of partnership you want. You may have heard the terms:

• A general partnership is composed of partners who participate in the day-to-day operations of the partnership are who have liability as owners for debts and lawsuits. There may also be limited partners
• A limited partnership has one general partner who manages the business and one or more limited partners who don’t participate in the operations of the partnership and who don’t have liability.
• A limited liability partnership is similar to the limited partnership, but it may have several general partners.

A Partnership Deed is a document that outlines in detail, the rights and responsibilities of all parties to a business operation. When two or more individuals come together to form a business partnership, it is advisable to have a correctly drafted Partnership Deed, carefully detailing the terms of the business relationship.

Having a partnership deed provides a legal liability between partners of the firm. It also states the profit sharing ratio, nature of business, name-address of the partners as well as firm.

Following are some of the key benefits of having a well-drafted Partnership Deed:

• Helps Avoid Conflicts: A Partnership Agreement helps to avoid conflict which may arise between partners. Where the terms of a partnership are not clearly set out and recorded, disputes may arise over ownership division, the roles and responsibilities of the partners, and the division of assets upon termination of the partnership.
• Written Record: By entering a formal, written agreement, there is little scope left for things to get messy at a later stage into the business.
• Legally Binding: A Partnership Deed is a legally binding document.

It may become difficult to operate a business smoothly in the absence of a Partnership Deed and disputes, if any, could turn messy. Therefore, it is always recommended to get a well-drafted Partnership Deed before starting any business in partnership.

The following are the main areas that should be covered in any Partnership Agreement:

• Name of the Partnership, details of the Partners and their designation.
• Business Activities: The primary business of the partnership should be clearly set out in the agreement together with any restrictions on the type of business or activities that the partnership may undertake.
• Management of the Partnership: Who is responsible for the management of the partnership? This ensures that the roles and responsibilities of the partners are clearly defined.
• Meetings of the Partners: Who is entitled to attend and vote at meetings? What is proper notice?
• Capital Contribution: It is important to agree and record the capital contributions and percentage ownership of each of the partners, if any. This will avoid disputes over ownership division.
• Profit Distribution: As all partnerships are different and may have different profit distribution criteria, it is important to clearly set these out in the Partnership Agreement.
• Financial Reporting and Taxation: The responsibilities and procedures for preparing and maintaining proper books of accounts and filing tax returns should be set out in the agreement.
• Transfers of Partnership Interests: The procedure for when a partner wishes to transfer their interest in the partnership. For example, written consent may be required from all of the partners otherwise the transfer is considered to be void by the terms of the agreement.
• Termination of Partnership: Partnership Agreements should set out the terms on which the partnership can be terminated and how assets and interests are dealt with upon termination.
• Resolving Disputes: Rather than pursue costly legal proceedings, a Partnership Agreement may provide for alternative dispute resolution such as mediation and arbitration.

A partnership is an arrangement between two or more groups, organizations or individuals to work together to achieve common aims. The term is now widely used, and sometimes it’s applied to situations where one powerful organization is doing no more than consult with others, or where one organization is simply buying something off another. But these are not real partnerships in the true sense. If they were, then every time your team asked another team for some information or advice, or ordered a product/service, these interactions would be described as partnerships! So what distinguishes such interactions from a true partnership?

Partnerships usually have the following characteristics

• All the parties involved have some sort of personal stake in the partnership;
• All the partners are working towards a common aim;
• The partners have a similar ethos or system of beliefs;
• The partners work together over a reasonable period of time;
• There is agreement amongst the partners that a partnership is necessary;
• There is an understanding of the value of what each partner can contribute;
• There is respect and trust between the different partners.

Partnerships are often more successful than individual endeavours because one group isn’t saddled with the responsibility of doing everything within its own constraints of perception, knowledge, skills or other resources. And having access to a wider variety of ideas and being able to share the financial costs of achieving a desired aim also means that an organization could confidently tackle issues they had previously steered clear of.

Partnerships are also successful because

• They share creativity, risk, responsibility and resources;
• Participants are able to feed off each other’s energy and enthusiasm;
• They can attract more funding from a diverse range of sources;
• They highlight different issues, problems and solutions;
• There is more potential for productivity/efficiency;
• Service delivery is often more effective;
• They offer support and diversity.