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Simple English definitions for legal terms
Partnership
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A quick definition of Partnership:
A partnership is a type of business where two or more people work together to make money. They share the profits and control of the business. This means that if the business owes money, all partners are responsible for paying it back. Each state has its own rules for partnerships, but they usually look at things like how much money each partner put in, who makes decisions, and who gets the profits. Partnerships are not taxed as a separate business, but each partner has to pay taxes on their share of the profits.
A more thorough explanation:
A partnership is a type of business where two or more people work together to make a profit. The people in a partnership share the profits and control of the business. They are also responsible for any debts the business has.
To create a partnership, the people involved usually sign a contract. This contract can be written or just agreed upon verbally. The contract should include details about how the profits will be shared and how the business will be run.
Two friends decide to start a business selling handmade jewelry. They agree to split the profits 50/50 and both have equal say in how the business is run. They sign a contract to make their partnership official.
For tax purposes, a partnership is not taxed as a separate entity. Instead, the profits are divided among the partners and each partner pays taxes on their share.
In the jewelry business partnership, if they make a profit of $10,000, each partner would receive $5,000. They would each pay taxes on their $5,000 share.