How is a partnership formed and operated?
A partnership can be either a general partnership or a limited partnership. In addition, a general partnership may be registered as a limited liability partnership (LLP), which provides certain limits on a partner´s personal liability for the LLP´s debts. No expense or legal formality is required to organize a general partnership, except, to register a general partnership as an LLP, a registration statement must be filed with the state, and filing fees and expenses must be paid. To form a limited partnership, a certificate of limited partnership must be filed with the state, and filing fees and expenses must be paid. It’s a good idea to have a written partnership agreement, even though one isn´t required. In a general partnership, each partner has an equal voice in managing the business of the partnership unless a written partnership agreement gives management authority to a certain partner or partners. In a limited partnership, the management of the partnership is reserved to a certain partner or partners who are called general partners, whereas the remaining partners, who are called limited partners, do not participate in the management of the partnership.
Tax responsibilities of both a general and limited partnership are the same as those of a sole proprietorship. The partnership must apply for a federal employer ID number and withhold income taxes and FICA from its employees´ wages. The partnership must pay FUTA and its share of Social Security for its employees. The partners themselves may have to pay self-employment taxes and make periodic estimated tax payments on their share of partnership income.