The United States does have any federal laws governing partnerships. All 50 states have developed their own set of laws, so there may be slight changes depending on where you business partnership is registered. The general principles are that you have three options: a general partnership, a limited partnership or a limited liability partnership (LLP). Each one has its pros and cons, with a large amount of focus on liability for each partner and for all the partners as a whole. The partnership agreement needs to specify the liability very clearly, along with allocation of decision making powers and share of the profits.
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Listed below are all such items that need to be mentioned in the partnership agreement:
Partnerships benefit from what is known as pass-through taxation, where the business does not pay income tax. Instead, each partner pays taxes on his or her share of the income. But on the other hand, the partners in a general partnership have to bear all the losses and liabilities.
Limited partnership agreements provide some protection to some of the partners. They will be only held liable up to the limit of their contribution to the partnership. The LLP offers substantially more protection from liability to all partners.
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Did you know?
You might have to pay tax on your share of the partnership income even if you have not received any funds from the partnership.
Under IRS rules, partners have to pay tax on their share of what the IRS considers as the firm's distributive income, even if no such income has actually been passed on as yet to the partners.