Business Partnership

What is a business partnership?

A business partnership is a legal agreement between two or more entities that determines the shared ownership and operation of a business. A partnership may be between two people, two businesses, or shared among several people and organizations.This is distinct from HR business partners (HRBPs), which are third-party consultants focused specifically on aligning a company’s business strategy and people strategy.

Whether you’re in a limited partnership, general partnership, or work with channel partners, it’s important to manage these relationships with strong HR strategies. With BambooHR, you can ensure your business partnership agreements remain stable so your organization can thrive.

How do business partnerships work?

A business partnership usually begins with a verbal agreement between the parties involved to form a new business or share an existing one. This agreement is then confirmed by a written document, outlining the type of partnership and details of the arrangement. It’s signed by all the parties involved.

According to the IRS, a partnership is required to submit an annual information return to report income, deductions, gains, losses, and other relevant financial details. However, a partnership isn't responsible for paying income tax directly. Instead, any profits or losses are ‘passed through’ to the individual partners. They then report their portion of the partnership’s income or loss on their own personal tax returns.

What are the types of business partnerships?

There are three main types of business partnerships:

General partnership:  All the business partners are general partners. This means they’re involved with operating the business and share liability for it. They may have a say in day-to-day operations, people decisions and choices that impact the direction of the business.

Limited partnership:  One or more general partners operate and are liable for the business. Meanwhile, other limited partners may function as advisors or simply as silent investors and are not liable.

Limited liability partnership:  This is a type of partnership where each individual has limited responsibilities and liability for the debts of the partnership.

Partners can also refer to the different types of channel partners that a company may work with to resell or service products.

What is the difference between a business partner and a shareholder?

Business partners and shareholders can both claim some ownership of a company. However, a business partner’s ownership is based upon their agreement with other partners and often involves some control over how the organization operates.

A shareholder is an investor who owns shares in a publicly traded business. While that gives them some influence—like the right to vote on major company decisions—their participation is limited. And it’s usually based on the number of shares they own.

On the other hand, what a shareholder lacks in influence is offset by the fact they’re not liable for the actions of the business. They may lose or gain money because of the performance of the business. But they can’t be held accountable for any illegal activity or gross misconduct on the part of the business or its partners.