Partnership

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The term partnership has many meanings. This article contemplates its use to describe a form of business entity.

A partnership occurs when two or more individuals formally agree to conduct a business together. Partners do not have to contribute equally to the business nor do they necessarily participate in the profits equally.

A partnership agreement will normally describe:

  • The nature of the business to be conducted
  • The capital to be contributed by each partner
  • The ongoing duties of each partner
  • The division of profits of the partnership
  • Formalities for admission of new partners, expulsion of partners, valuation of partnership interests and what happens upon the death or disability of a partner

Partnerships are not normally taxed, per se, but partners are taxed on their share of the partnerships profits. A taxable share of profits is can be significantly less that cash received, and this is more likely to be true in the early stages of the business with cash is required to finance working capital and growth.

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