Sunday, October 10, 2010
What Are The Types Of PartnerShips
A partnership is a legal association of two or more individuals called partners and who are co-owners of a business for profit. Like proprietorships, they are easy to form. This type of business organization is based upon a written agreement that details the various interests and right of the partners and it is advisable to get legal advice and document each person’s rights and responsibilities.
There are three main kinds of partnerships
• General partnership
• Limited partnership
• Master limited partnership
A business that is owned and operated by 2 or more persons where each individual has a right as a co-owner and is liable for the business’s debts. Each partner reports his share of the partnership profits or losses on his individual tax return. The partnership itself is not responsible for any tax liabilities.
A partnership must secure a Federal Employee Identification number from the Internal Revenue Service (IRS) using special forms.
Each partner reports his share of partnership profits or losses on his individual tax return and pays the tax on those profits. The partnership itself does not pay any taxes on its tax return.
In a Limited Partnership, one or more partners run the business as General Partners and the remaining partners are passive investors who become limited partners and are personally liable only for the amount of their investments. They are called limited partners because they cannot be sued for more money than they have invested in the business.
Limited Partnerships are commonly used for real-estate syndication.
Master Limited Partnership
Master Limited Partnerships are similar to Corporations trading partnership units on listed stock exchanges. They have many advantages that are similar to Corporations e.g. Limited liability, unlimited life, and transferable ownership. In addition, they have the added advantage if 90% of their income is from passive sources (e.g. rental income), then they pay no corporate taxes since the profits are paid to the stockholders who are taxed at individual rates.