What is partnership form of business?

A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

Advantages of forming a partnership

The following are often seen as being positive attributes of being in a partnership:

  • Partners may possess complimentary skills, which can be very cost-effective. Partners may specialise and become more efficient in certain aspects of their creative business. One partner might be good at selling work and presenting to clients, while another is better at bookkeeping.
  • Partners have access to a wider pool of knowledge, skills and contacts.
  • Partnerships provide moral support and will allow for more creative brainstorms
    Partnerships have access to large amount of capital and find it easier to expand as compared to sole proprietor.
  • Partnerships have better administration and financial systems in place than sole traders.


  • A partnership is for the long term, and expectations and situations can change, which can lead to dramatic split ups. You might spend more time with your business partner than with anybody else, so losing that very intimate and personal business relationship can lead to major problems when splitting up.
  • You have to consult your partner and negotiate more as you cannot take decisions by yourself. So you need to be more flexible.
  • You both are responsible for the business debts and errors of others. So if the business fails and incurs debts, and your partner doesn’t pay his or her share, you will still be required to pay. This is even the case if debts were incurred by your partner’s dishonesty or mismanagement without your knowledge.
  • You have to share your profits and decide on how you value each other’s time and skills. What is more valuable to the company - a fantastic creative idea generator or somebody who can sell this idea to a customer? What happens if one person puts in 60 hours a week and the other one turns up late very regularly? What happens if one partner can put in less time due to personal circumstances, such as caring responsibilities or illness?


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