The partnership is somewhat similar to the sole proprietorship. It has two or more people involved in the business. It requires one or more legal agreements spelling out the nature of the partnership, such as terms of agreement, responsibilities, salaries, and other business related details.
There are two types of partnerships: general and limited partnerships. General partners share in having unlimited personal liability for the business, in the same manner as the sole proprietorship. If one partner could not cover his part of a debt of the business, the others may be held liable for the entire amount. Limited partners are generally not involved in running the business, and usually are liable for only the amount of money they invested in the partnership agreement.
Each partner, unless specifically stated otherwise in the agreement, may carry on the activities of the business. This is one of the disadvantages of the partnership. Since each partner may carry out business, problems may arise if communication is not kept open and smoothly flowing between the partners.
Partners file an additional tax form to the federal government, as well as any state forms that may be needed. The partnership ends when either of the partners dies, when the agreement calls for the end of the partnership, or when a partner legally leaves the partnership.