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A partnership is an organization where two or more owners operate a business. They share the profits in proportion to their percentage partnership interests.  There are two types of partnerships – general partnerships and limited partnerships. 

General partners normally share management duties, profits and losses equally, regardless of their partnership interest percentage.  However, in a general partnership, each partner ultimately has unlimited liability. For instance, John and Susan form a general partnership with each owning a 50% interest.  Assume the partnership ends up owing $100,000 to a bank.  John can be forced to pay the entire $100,000 without Susan having to pay anything. 

Further, each general partner has the right to make management decisions on behalf of the partnership, thus binding the partnership to contracts and agreements.

Limited partners are often called passive investors.  They do not make management decisions on behalf of the partnership.  Limited partners are only liable up to the amount of the money and property they contribute to the partnership. 

Most partnerships are governed by a partnership agreement that details the rights, duties and responsibilities of the various partners.  In the absence of a partnership agreement, state law will dictate them.  

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