A partnership is formed when two or more people agree to work together, and each person injects a certain amount of equity in the form of cash or experience, for the purpose of running a business venture. Each partner has the obligation of personally managing the business venture since, they bring with them a host experiences from running other entities. They should have a clear similar vision, on what trend the growth of the partnership should take.
Before you commence operations of the business, you will need to draft a partnership agreement that details how the partners will work together. The particulars of the deal will include the intended name of your enterprise, the type of business that you plan to carry out, the partners rights and percentage share of generated profits, the steps to be taken upon dissolution of the business entity and the procedures that the two of you will use to solve disagreements amongst yourselves.
Under the law, partners are personally liable for the business decisions that they make and any one of them can enter into a business contract with any other entity. If they fail to pay any amounts owed to the creditors, they can both be sued in the courts of law and they will both equally be compelled to pay up or face bankruptcy proceedings. Each partner is sued depending on the amount of ownership as agreed on the partnership agreement.
Tax laws consider parties to a partnership as independent entities. However, they will need you to fill up the IRS Form 1065 for the business entity and the Schedule K-1 for the individuals, indicating the amounts of profits or losses that each partner is entitled to. The partners will then indicate these results on their individual income tax return Form 1040 -Schedule E, which you can easily do on a spreadsheet at the end of each financial year.
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