The Real Estate Encyclopedia
What is a Partnership?
Category - Professional Development - Become a Real Estate Agent

If your business will be owned and operated by several individuals, you might consider structuring your business as a partnership. There are two types of partnerships, general and limited partnership. In a general partnership, the assume responsibility for the partnership’s debts. A limited partnership has both general and limited partners. The general partners own and operate the business and assume liability, while the limited partners serve as investors only and have no control over the company while not assuming the same liability as the general partners.

A partnership requires that a partnership agreement be drafted, defining how disputes will be resolved and how to handle a buyout. The agreement also addresses the purpose of the business and the authority and responsibility of each partner. It is advisable that you consult an attorney when selecting this type of structure.

A partnership does not pay taxes but any profits and losses are passed to the individual partners. At tax time, each partner files a Schedule K-1 form, which indicates his or her share of the partnership income, deductions and tax credits. Each partner is required to report any profits from the corporation on his or her personal tax return. The partnership must compute its income and report it on a separate informational return.

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