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What Is a Partnership and What Are the Advantages?

A Partnership is a business operated by two or more partners. There is no federal regulation that governs how Partnerships are formed; each state has its own rules on the matter. The exact nature of the Partnership will depend on the partnership agreement, which should be drafted with the help of an attorney and should comprehensively regulate business matters to avoid misunderstandings down the line.

Partnerships can be very similar to Sole Proprietorships in the sense that the business is not necessarily an independent entity; in the simplest form of Partnership, all partners contribute capital and all are fully liable for business debts. Each partner will pay taxes separately, although information about income and expenses is filed for the Partnership as a whole. The Partnership Agreement is merely a way to share Sole Proprietorship. However, other variants of Partnerships may differ in how liability or capital contributions are structured.