Partnership
A business owned by two or more individuals who share profits, losses, management responsibilities, and liability.
What is Partnership?
A partnership is a business structure in which two or more individuals (partners) co-own a business, sharing its profits, losses, and management responsibilities. Partnerships are classified as general partnerships (all partners have unlimited personal liability and management rights), limited partnerships (LP, where general partners manage and bear unlimited liability while limited partners contribute capital and have liability capped at their investment), or limited liability partnerships (LLP, common among law and accounting firms, providing liability protection for all partners). Partnerships are pass-through entities for tax purposes — profits and losses flow directly to partners' personal returns without entity-level taxation. The partnership agreement governs the division of profits, capital contributions, voting rights, and exit procedures.
Example
A private equity firm typically operates as a limited partnership: the firm's principals act as the General Partner (GP), managing investments and bearing unlimited liability, while pension funds, endowments, and family offices invest as Limited Partners (LPs), receiving 80% of profits with liability capped at their committed capital. The GP earns a 2% annual management fee plus 20% carried interest (performance fee) — the standard '2-and-20' structure.
Source: IRS — Partnerships