A partnership is formed when two or more people agree to work together and each person injects a certain amount of capital in the form of cash or expertise for the purpose of running a business venture. Each partner has the obligation to personally manage the business venture since it brings with it a large amount of management experience from other entities. They should have a similarly clear vision of what trend the growth of the association should take.
Before beginning business operations, you will need to draft a partnership agreement that details how the partners will work together. Details of the deal will include the intended name of your business, the type of business you plan to conduct, rights of partners and percentage share of profits generated, steps to follow upon dissolution of the business entity, and procedures that the two of you will use to resolve disagreements between you.
Under the law, partners are personally responsible for the business decisions they make, and any partner may enter into a business contract with any other entity. If they do not pay the amounts owed to creditors, both can be sued in the courts of law and both will be equally forced to pay or face bankruptcy proceedings. Each partner is sued depending on the amount of property agreed upon in the partnership agreement.
Tax laws consider the parts of a partnership as separate entities. However, they will need you to fill out IRS Form 1065 for the business entity and Schedule K-1 for individuals, indicating the amounts of profit or loss to which each partner is entitled. Then, the partners will indicate these results in their individual income tax return Model 1040 – Schedule E, which you can easily do in a spreadsheet at the end of each fiscal year.
