What is a partnership?

A partnership is one of the four general ways you can choose to organize your business (the other three being as a sole proprietorship, as a corporation or as a limited liability company). A partnership is the default business organization for two or more people - in other words, if two or more people start a business together and do not specifically set it up as a formal corporation or LLC, it is automatically a partnership. While this suggests that partnerships are very easy to setup, there are some basic steps which you should follow, such as preparing a written partnership agreement. Even so, partnerships are significantly cheaper and easier to set up than a corporation or LLC, and they are also generally cheaper and easier to control and operate. Thus, partnerships are the simplest business form for multiple co-owners to set their business up as (since a sole proprietorship cannot generally have more than one owner).

As with a sole proprietorship, the owners of a partnership are not generally afforded any liability protection, meaning they are personally liable for any losses, debts or judgments of the partnership itself. Most partnership are general partnership, where all partners have the ability to control and manage the partnership, which means that all of the owner-partners have personal liability risks. Some partnerships instead opt to be run as a limited partnership, which means that some of the partners are only investors (e.g., silent partners) with no control over the partnership - this lack of control affords these limited partners some of the same limited liability protections offered to the owners of corporations and LLCs.