Partnerships are sort of like sole proprietorships for two or more people. Again, there is no need to register your partnership with the state, and like with a sole proprietorship, you are taxed individually, i.e., each partner is taxed on the partnership’s profits – so there is no need to file separate returns for your business.
And although you do not have to register a partnership, you are well-advised to draft a written agreement laying out the terms of the partnership. The partnership agreement, at a minimum, should outline each partner’s share in the profits, losses, and funding obligations. Furthermore, the partnership should detail what happens to the business should one of the partners die.
The major disadvantage, of course, is that the members of a general partnership are fully liable for the debts and obligations of the partnership. If your company is sued, then each partner will have to pay the damages and attorneys fees – and if the damages are steep, you could lose your shirt – and your house.
A limited partnership is similar to a general partnership except that the limited partners are only liable for what they put in to the partnership. Limited partners are like investors into the partnership – they can only lose what they invest. However, limited partners are not allowed to have any say in the management of the partnership.