Business Partnerships 101: Types, Advantages, and Disadvantages | ZenBusiness Inc.

Wondering how to form business partnerships with two or more people to start or grow your company?

Learn about the different types of partners and partnerships, their differences, advantages, and disadvantages to make your best decision for new business startup.

Guide to Business Partnerships

Definition of a partnership business

What is a partnership in business?

A business partnership is similar to a personal partnership or marriage where individuals decide to:

• combine financial resources to start a profitable business
• share their talent, time and skills towards their common objective of business success
• participate in the ups and downs, successes and failures of their enterprise.

Business partnerships are a specific type of, legally binding, the business entity that is formed by the partnership agreement, accepted by two or more individuals, who are the business co-owners. Read my review of partnership agreements, what to include and pricing 

A multiple-owner partnership business structure is where each owner invests either time, talent, and money into the company. In some partnerships, individual co-owners work in the daily operations business. While other partnerships include partners with limited participation and also limited liability for the company’s debts and lawsuits.

Partnerships differ from other business structures, such as corporations, because they are not separate entities outside of the original owners in the eyes of the law. The partnership share of income tax is paid by the partners. The profit and losses of the company are divided, according to the percentage of ownership, amongst the partners and listed on their individual personal tax returns.

This means that this type of business entity, like a DBA or sole proprietorship, and some forms of subchapter S corporations, is a pass-through business. This means that all the profits and losses of the company will pass through to the owners’ personal financial income tax statements. 

 Learn about the most important pros and cons of starting a business with a partner in my in-depth article here