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 experience for the purpose of running a business enterprise. Each partner has the obligation to personally manage the business venture since they bring with them a large amount of management experience from other entities. They should have a similarly clear vision of which direction the association’s growth should take.
Before starting business operations, you will need to write a partnership agreement detailing how the partners will work together. The details of the deal will include the intended name of your company, the type of business you plan to conduct, the rights of the partners and the percentage of participation in the profits generated, the steps to be taken after the dissolution of the business entity and the 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 the 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 in the partnership agreement.
Tax laws treat 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 can be easily done in a spreadsheet at the end of each fiscal year.