The basic ordinary definition of a partnership is the operation of a business for profit by two or more individuals. The the pros and cons of a partnership are like that of a sole proprietorship. A partnership is somewhat easy to start set up with few formal requirements in most states. A written partnership agreement is not required but is certainly recommended. However, the risk of liability becomes more likely in a partnership because each person’s personal assets are at risk for the actions of the other partners as well as their own.
I never recommend a general partnership to individuals planning to start a new business. The reason is that if you set it up properly with a good partnership agreement it will cost almost as much as just setting up or forming a limited liability company or LLC. The LLC provides limited liability protection of your personal assets as well as flexible operation similar to a partnership. It just doesn’t make sense to operate as a partnership with no liability protection when you can get asset protection  with the LLC.
LLC’s have similar taxation issues as partnerships in most cases. In fact, the default  form of taxation  for an LLC is the partnership form of taxation. This means that the LLC, similar to a partnership, does not pay income tax as an entity. Rather, it reports the net income of the business and the individual owners pay income tax based upon their prorata propoprtionate   share of ownership. For example, if two people equally own and operate a partnership or LLC and the business has $10,000 worth of net income, then each partner or LLC member will be obligated to pay income tax on their 50% share of the net income. LLC’s have the advantage in that they can elect the form of taxation they will be under. The IRS rules allow LLC owners to choose whether they will be taxed under the default rules of partnership or as a C corporation or S corporation. The tax election is fairly easy to make and gives LLC owners a number of options depending upon their circumstances and conditions.
Provided by Attorney Bob Montgomery

