Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Small Enterpreneurs

  1. Corporation
  2. Limited Companies
  3. Sole Trader

Partnership – What is a partnership?

Definition: A partnership is defined as two or more persons in business with a view to making profits; the number is usually limited to a maximum of 20.

In a partnership, the partners provide the capital and share the responsibility of running the business on agreement between its members.

Partnerships are common in the same services provided by sole traders but a partnership would have the advantage of being able to raise more money because each partner could make a financial contribution. The liability for any debts of the business would be the partners.

Tax advantage of partnerships

Partnerships are often favoured over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners.

However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.