What is a Partnership?

A partnership is a business relationship under which a single business is owned by multiple individuals. Partnerships are required to have their own EIN/ITIN because they need to file their own tax returns. A partnership will be taxed with flow-through income, which means that each individual partner is responsible for their income and their loss. This is one of the ways in which partnerships differ from LLCs, as LLCs can choose to be taxed either as partnerships or as corporations.

Tax advice is usually needed to determine whether a business should be formed as a partnership or an LLC. There’s only one situation in which an LLC is always better than a partnership; if there’s only a single individual. With a sole member LLC, a partnership isn’t possible, because a partnership needs to be an agreement between multiple people. Otherwise, the partnership structure comes down to the incorporation documents that outline the ownership and ownership percentages. Once formed, the partnership should apply for an EIN. An EIN can be acquired through the mail, through the phone, or online. Online is always the fastest option; it only takes an hour.

Written by Maurice Mallory