A partnership is a form of a business entity that provides many more advantages than any other form of business entity. There are several basic principles of a partnership that once understood, the reader can use to his advantage in the small business world. Below are descriptions and an explanations of the basic principles of a partnership and the corresponding legal impact.
Special allocation is by far the most financially valuable aspect of a partnership entity status. The income from the business operation can be allocated to the partners based on the partnership agreement. One partner can be assigned capital gains or losses from the partnership while another is allocated earnings as earned income. Another partner can receive passive income which is taxed differently than capital gains or earned income. It is even possible to have a profit, assign more than that profit as earned income to one partner, generate a loss and assign that loss to another partner.