partnership
/ PART-ner-ship /
Two friends decide to open a restaurant together: one cooks, one runs the front of house, and they split both the work and the rewards. A single owner is no longer the whole story — now there are co-owners who pool money, share profits, and must agree on decisions. A business owned together like this by two or more people is a partnership.
A partnership is a business owned by two or more people who agree to share its profits, losses, and management, usually set out in a partnership agreement. Each partner contributes something — cash, equipment, skills, or effort — and the agreement spells out how profits are divided (not necessarily equally). In accounting, the equity section is split into a separate capital account for each partner, tracking what each one has invested and earned. In a basic general partnership, the partners share unlimited liability, and crucially each partner can be held responsible for debts the others run up on the business's behalf.
Partnerships let people combine money and talents that none of them has alone, and they are simple compared with corporations. But the shared unlimited liability is a real danger — you can be on the hook for a partner's mistakes — and disagreements can paralyze the business, which is why a clear written agreement matters so much. A frequent misconception is that profits must be split equally; in fact they are divided however the partners agreed, which need not match who put in the most cash.
Three partners agree to split profits 50/30/20, matching the hours and money each puts in rather than splitting evenly. The books keep a separate capital account for each, so when the year's 60,000 dollar profit is shared, 30,000 goes to the first partner's account, 18,000 to the second, and 12,000 to the third.
Each partner has a separate capital account, and profit is split by agreement, not always evenly.
In a general partnership each partner can be personally liable for the whole of the partnership's debts — including obligations a partner created without consulting the others. A written agreement reduces, but does not erase, this risk.