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Forming a Partnership
When two or more people (not spouses) start a business together, a sole proprietorship isn’t an option. Instead, the owners may form a general partnership, which is much like the sole proprietorship in that it can be established easily and requires minimal cost or paperwork (some states might require a basic partnership certificate stating the partners’ names, aside from other business licenses).
The profits from a partnership flow through to the partners’ personal income tax returns. Partners may split profits equally, or decide one or more partners deserve a greater share for contributing either more assets or work hours to the business. Each partner then pays self- employment taxes on his or her share.
By COLLEEN DEBAISE
Adapted from THE WALL STREET JOURNAL COMPLETE SMALL BUSINESS GUIDEBOOK (Three Rivers Press).
Editor’s Note: This is part two of a five-week series on the various legal structures for your small business. Click here to read part one on sole proprietorships.
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