A partnership is formed when two or more people agree to work together and each person injects a certain amount of capital in the form of cash or expertise for the purpose of running a business venture. Each partner has the obligation to personally manage the business venture, since they bring with them a large number of experiences in the management of other entities. They should have a similar clear vision of the trend that the association’s growth should take.
Before starting business operations, you will need to draft a partnership agreement that details how the partners will work together. The details of the agreement will include the intended name of your company, the type of business you plan to carry out, the rights of the partners and the percentage of participation of the profits generated, the steps to follow after the dissolution of the business entity and the procedures that the two of you will use to resolve disagreements between you.
Under the law, partners are personally responsible for the business decisions they make, and either partner can enter into a business contract with any other entity. If they do not pay the amounts owed to the creditors, both can be sued in the courts of law and both will be equally forced to pay or face bankruptcy proceedings. Each partner is sued according to the amount of ownership agreed in the partnership agreement.
Tax laws consider the parts of a company as independent entities. However, they will need you to fill out IRS Form 1065 for the business entity and Schedule K-1 for the individuals, indicating the amounts of profit or loss to which each partner is entitled. The partners will then report these results on their 1040-Schedule E Individual Income Tax Return Form, which you can easily do on a spreadsheet at the end of each financial year.