What is a Business Partnership?

A partnership is a business structure where two or more people share ownership, responsibilities, and profits. Unlike a sole proprietorship, partnerships allow you to pool resources, skills, and capital with others while sharing the risks and rewards of the business.

Types of Partnerships

There are several partnership structures, each with different liability and management rules:

• General Partnership (GP): All partners share management duties and personal liability equally
• Limited Partnership (LP): Has general partners (who manage and have liability) and limited partners (who invest but do not manage and have limited liability)
• Limited Liability Partnership (LLP): Partners have some liability protection — common for professional firms like law and accounting practices

Key Characteristics

Partnerships share several common features:

• Pass-through taxation: Partnership income flows through to partners' personal tax returns
• Partnership agreement: Should define profit sharing, decision-making, and exit procedures
• Shared liability: In general partnerships, each partner can be held responsible for business debts and other partners' actions
• Fiduciary duties: Partners owe each other duties of loyalty and care

Advantages of Partnerships

Partnerships offer several benefits:

• Pool capital and resources from multiple owners
• Combine complementary skills and expertise
• Share the workload and responsibilities
• Easier to form than corporations
• Pass-through taxation avoids double taxation

Financing a Partnership

When partnerships apply for financing, lenders typically evaluate all general partners:

• Personal credit scores of all general partners are reviewed
• All general partners usually must sign personal guarantees
• Partnership agreements may be requested to understand ownership structure
• Combined personal net worth of partners affects borrowing capacity
• Lenders want to see clear management structure and decision-making authority

Partnership vs. LLC

Many businesses that would have formed partnerships now choose LLCs instead. An LLC offers similar flexibility and pass-through taxation but with better liability protection for all members.

Consider an LLC if liability protection is important and you want to avoid the unlimited personal liability that comes with general partnerships.