Definition
A partnership a type of business entity that is owned by two or more persons and there is a legal distinction between the owner and the business. The owners can be natural persons or corporations or a combination of both.
Advantages
- Easy and inexpensive to set up, but more expensive than a proprietorship.
- Losses incurred can be applied against the owner’s other income which will reduce the owners income taxes.
- Separate tax returns may be required depending on the number and makeup of the partners.
Disadvantages
- The tax rate of the business is the same as that of the owners. Any income earned by the business is taxed at the marginal rate of the owners based on their share of the income.
- Each partner is jointly and severally liable for all debts of the partnership. All personal assets owned by each partner are not protected against creditor claims.
- Financing may be more difficult to get.