While the information provided here is thought to be accurate, it should not be used as a substitute for legal advice on matters related to business organization, taxes, or other business and financial management matters. Decisions about the best way to structure your business should be made after consulting with your legal and tax advisers.

If your business will be owned and operated by more than one individual, you may wish to consider structuring your business as a partnership. Partnerships come in two varieties:

• General Partnerships
  In a general partnership, the partners manage the company and assume responsibility for its debt and other obligations. If you have two or more partners who want to be actively involved, a general partnership is the simplest to form.
• Limited Partnerships
  A limited partnership involves both general and limited partners. The general partners own and operate the business and assume liability for the partnership, while the limited partners serve only as investors. The limited partners have no control over the company and are not subject to the same liabilities as the general partners. Because limited partnerships have complex administrative requirements, they are usually not the best choice for a new business, unless a large number of passive investors is expected.

Advantages

General partnerships are attractive because they are flexible and easy to form. There is limited intervention from government, and the business benefits from the combined talents and resources of all its partners.

Another major advantage of a partnership is the tax treatment it enjoys. A partnership does not pay tax on its income but passes its profits or losses to the individual partners. At tax time, each partner files a schedule K-1 form, which indicates his or her share of partnership income, deductions and tax credits. In addition, each partner is required to report profits from the partnership on his or her individual tax return. Even though the partnership pays no income tax, it must compute its income and report it on a separate informational return, Form 1065.

Disadvantages

Personal liability is the primary concern with a general partnership. Like sole proprietors, general partners are personally liable for the partnership's obligations and debt. If the partnership agreement permits it, each general partner can act on behalf of the partnership, take out loans, and make decisions that will affect and be binding on all of the partners. In addition, limited partnerships are more expensive to establish than sole proprietorships because they require more legal and accounting services to accommodate its more complex administration and management.