1. Voluntary association.
2. Partnership contract (called articles of co-partnership)—
should be in writing but may be expressed orally.
3. Limited life—death, bankruptcy, or expiration of the contract
period automatically ends a partnership.
4. Taxation—not subject to tax on income—partners report their
share of income on personal income tax return.
5. Mutual agency—each partner is an agent of the partnership
and can enter into and bind it to any contract within the
normal scope of its business.
6. Unlimited liability—each general partner is responsible for
payment of all the debts of the partnership if the other partners
are unable to pay a share.
7. General partnership—all partners have mutual agency and
8. Co-ownership of property—assets are owned jointly by all
partners but claims on partnership assets are based on their
capital account and the partnership contract.
1. Limited Partnership (LP or Ltd.) has two classes of partners,
general (at least one) and limited. The general partners assume
unlimited liability for the debts of the partnership. The limited
partners assume no personal liability beyond their invested
amounts and cannot take active role in managing the
2. Limited Liability Partnership (LLP) is designed to protect
innocent partners from malpractice or negligence claims
resulting from the acts of another partner. Generally, all
partners are personally liability for other partnership debts.
3. “S” Corporation has 100 or fewer stockholders, is treated as a
partnership for income tax purposes but otherwise is
accounted for as a “C” corporation.
4. Limited Liability Company (LLC or LC) owners are called
members, are protected with the limited liability feature of
corporations and can assume an active management role. The
LLC has a limited life and is typically classified as a
partnership for tax purposes.
B. Choosing a Business Form
Factors to be considered include: taxes, liability risk, tax and fiscal
year-end, ownership structure, estate planning, business risks, and
earnings and property distributions.