Generally speaking, a partnership is a sole proprietorship with one or more additional owners. In general partnerships, each owner shares management of the business and liability for the acts of the partnership. Similar to a sole proprietorship, a partnership is not deemed a separate legal entity and therefore losses and profits made by the business are passed through to be reported on the partners' personal Form 1040 with Schedule E attached. In addition to the Form 1040, owners of a partnership must also file an informational form, Form 1065 to make the government aware of how much the business earned or lost that year.
Similar to a proprietorship, a partnership is legally inseparable from its owners. Therefore, partners are personally liable for business related obligations. In addition, the business actions of any one partner reflect all of the partners and all can be held personally liable for the actions of one.
The transferal of partnership interests can be very complex. Approval of the other partners may be required before partnership interests may be sold off. In most cases, a partnership is legally dissolved upon the death, retirement, insanity, resignation or expulsion of a general partner.
Following are some pros and cons of operating a business as a partnership: