A partnership entity is a designated business structure that has two or more owners. The entities involved in a partnership can be individuals, trusts or corporations. The debt, liability and profit of the entity are shared among the partners. A partnership entity type is similar to a sole proprietorship other than it involving two or more individuals or entities.
Why Choose a Partnership?
Many businesses choose to partner together to pool assets to launch a new business or organization. Additionally, a partnership is usually a pass-through business, which means the business profits and losses are reported on individual tax returns. Unlike starting a corporation, starting a partnership has little legal paperwork to establish the business. Generally, you just have to draft a partnership agreement and ensure you have all the necessary certificates and licenses to conduct business in the location of the business.
Are There Any Risks Involved?
One key factor to understand about a partnership entity type is that all partners have direct liability for the business. This means that any lawsuits, debts or losses the business incurs become the responsibility of the owners. If the business cannot pay its own debts or someone sues the business, the owners’ personal assets become vulnerable.
Partners also have the power to work as an agent of the company, which could mean they make a decision on their own that puts the whole company at risk. Additionally, the death of one partner terminates the partnership unless appropriate action has been taken prior to the death.
Before applying for your partnership, it is important to weight the pros and cons to ensure you choose the right business structure for your company. Then, you need to get your federal tax ID number. You can apply for an EIN here or contact IRS EIN Tax ID Filing Service to learn more about IRS-EIN-Tax-ID.