General Partnerships
A partnership is an association of two or more persons to carry on as co-owners
of a business for profit. It is a legal entity only to the extent that it can
own property and can sue or be sued in its own name.
A partnership agreement may be either oral or written. However, if the business
is to last for more than one year, some states will require that the partnership
agreement be in writing. Moreover, it is desirable to set out the details of
any partnership agreement in writing to resolve potential disputes among the
partners.
Partnerships enable investors to pool their capital, ideas
and management abilities. This pooling of assets may contribute
to the establishment of a successful business.
Each member of a general partnership has unlimited liability
for the partnership's debts, and each may be held jointly
and severally liable for all partnership obligations. Thus,
the partnership's ability to borrow funds is limited by
the credit of the individual partners. A transfer of a
partner's interest in the business may require approval
of the other partners. Each partner is subject to federal and state income taxes
on his or her share of each item of the partnership's income
and loss. The liability for tax arises regardless of whether
the partnership's profits are distributed or retained. The
partnership itself is not subject to income tax.
Limited Partnerships
A limited partnership is similar to a general partnership
in that it is an association of co-owners formed to carry
on a business. A limited partnership has at least one general
partner and at least one limited partner. The liability of
a limited partner is limited to the amount that partner invests
in the partnership. The liability of a general partner is
unlimited.
The liability of limited partners cannot exceed the amount
that they are required to invest in the partnership, either
in cash or in tangible property. General partners are subject
to unlimited liability for the debts of the partnership and
are solely responsible for the management of the business.
Limited partners may neither take part in the management
of the business nor allow their names to be used in the partnership
name.
Withdrawal
of a limited partner usually will not terminate the limited
partnership. However, the withdrawal of all general
partners will cause the partnership to be dissolved. A limited
partnership is subject to the same tax treatment as a general
partnership. If any partnership has sufficient corporate
characteristics, it will be characterized as an "association" and
taxed as though it were a corporation.
Disclaimer
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"The
information contained herein is of a general nature and
is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and
timely information, there can be no guarantee that such information
is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough
examination
of the particular situation.
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© 2006 KPMG LLP, the
Canadian member firm of KPMG International,
a Swiss cooperative. All rights
reserved."
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