Sole Proprietorships and Partnerships

Sole Proprietorship Partnership

The simplest form of business; used by anyone who does business without creating an organization. The owner is the business. The owner pays personal income taxes on all profits and is personally liable for all business debts.

1.

Created by agreement of the parties.

2.

Not treated as an entity except for limited purposes.

3.

Partners have unlimited liability for partnership debts.

4.

Each partner has an equal voice in management unless otherwise provided for in the partnership agreement.

Chapter 25

Sole Proprietorships and Partnerships

Partnership (Continued)

5.

In the absence of an agreement, partners share profits equally and share losses in the same ratio as they share profits.

6.

The capital contribution of each partner is determined by agreement.

7.

Each partner pays a proportionate share of income taxes on the net profits of the partnership, whether or not they are distributed; the partnership files only an information return with the Internal Revenue Service.

8.

Terminated by agreement or can be dissolved by action of the partners (withdrawal), operation of law (death or bankruptcy), or court decree.

Chapter 25