Types of Business Organizations

Business organizations can be structured in various ways, regarding their structures as legal entities, internal structures, and management processes. The partnership is one type of business structure. The partnership is the next simplest business structure after the sole proprietorship. Because sole proprietors can only have one owner, the partnership is the simplest structure open to collaborative ownership.

Partnership The partnership is the simplest structure open to collaborative ownership.

Partnership: Pros and Cons

A large advantage of the partnership structure is its ease of filing and tax treatment. With a general partnership, two or more people can start a business as co-owners with no special formalities, directly controlling the partnership and making binding decisions with a simple majority vote. The partners are taxed individually on their share of the partnership's profits. By default, profits are shared equally among the partners. However, a partnership agreement will almost invariably expressly provide for how profits and losses are to be shared.

The structure's main disadvantage is similar to that of a sole proprietorship. In some forms of partnership, owners can be personally liable for business losses, meaning their personal assets are not protected against creditors' claims. Unlike a corporation, the partnership is not a separate entity from the owners/entrepreneurs.

This means the partnership structure is only as good as the partnership at the relational level. If the mutual consent to form a partnership breaks down, the partnership also breaks down; partnerships are considered to be an aggregate of their partners rather than a separate entity.

There has been debate in most states as to whether a partnership should remain aggregate or be allowed to become a business entity with a separate continuing legal personality. Types of partnerships beyond the general partnership have developed to mitigate some of the disadvantages of the structure. Limited partnerships allow limited liability for partners with no management authority, and in some cases (depending on the jurisdiction) limited liability partnerships provide for limited liability for all partners.