According to partnership law, a partnership is an association of two or more people doing business together, but they have to have the goal of earning a profit. Under partnership law, a partnership is considered the same with its owners, there is no distinction between the partnership and the owners. Under this partnership law if your business owes any debts, you and your partner are going to be held personally responsible for the debt. If you do not have the money to pay off the debt you can lose your house or other personal assets, all that matters is that the business debts are satisfied.
When it comes to liability in a partnership there are rules set forth to help determine the amount of liability that each partner has. The only time these rules do not allow to partnership laws is if it is a limited partnership, in that case limited partnership law applies. According to partnership law, every partner is going to be liable for his or her own actions. Partners are also liable for the actions of the other partners if it is related to the partnership. Finally, every partner in the business is liable for the actions of the partnerships employees, even if you did not want to hire that employee in the first place. For example, if you are in a partnership with one other person and during the course of delivering something for work, they hit a bus you and your partner are jointly and severally liable for any damage that is caused. If your employee got into an accident during work hours while doing a personal errand the partnership is not liable, you and your partner would only be liable if the accident happened while the employee was doing something work related.
Under partnership laws, you will also want to file a partnership agreement. A partnership agreement document can be found online or books that talk about how you go about forming a partnership. The partnership agreement is what the partnership uses to set forth the partnership laws, such as who the partners are, how much of the business each partner owns, where the business will be doing business, and anything else that relates to the partnership.
While most partnership laws are directed towards general partnerships, there is also limited partnership law. With a limited partnership one partner has unlimited liability and the other partner has limited liability, usually the limited partner is only liable for their investment in the company. Limited partnerships are different from general partnerships because they are created by statue, not by the partners’ intentions. Limited partnerships also differ from general partnerships because they have the ability to override the partnership agreement, which would make them immune to general partnership laws.
Both general and limited partnerships have pass through taxation. Under the partnership laws a partnership is a tax-reporting entity, not a tax-paying entity like a corporation is. With general and limited partnerships according to partnership laws profits are passed through to the owners and are then divided between the partners based on the partnership agreement. The difference between a general partnership and a limited partnership is that in some cases a limited partnership can be considered a tax-paying entity because it meets the criterion that deems it is to be taxed as a corporation.
Partnership laws are created to help reduce the chances of disputes between partners, which is another reason that a written partnership agreement should be put into place before starting a partnership.
