Features of a partnership business include two or more members in the partnership, no legal separation between the members and the business, profit sharing between all members, mutual agency, and unlimited liability. Transfer of ownership or the addition of a new member require the consent of all partners.
A partnership begins with a partnership agreement, which can be oral or written. The agreement specifies the members, their duties, the life span of the partnership, how it can be dissolved, how members can leave or join the partnership, and profit sharing. If profit sharing is not specified, each member is expected to share the profits or losses of the partnership equally. Mutual agency means that any partner may make legally binding commitments for the partnership. Since a partnership business is not considered a separate entity from the partners, any lawsuits would be directed at the partners. Unlimited liability means that the partners must use their personal assets to meet any debts that the partnership cannot pay.
There are two types of partnerships. A general partnership is a partnership where each member has unlimited liability. A limited partnership has at least one partner with unlimited liability and at least one limited partner whose liability is equal to the amount invested.