A partnership is an "association of two or more persons to carry onas co-owners of a business for profit." Uniform Partnership Act § 202.These co-owners can operate the business by themselves, or hire employees and/or independent contractors to carry out tasks for them. As a practical matter, a partnership is usually created by the partners entering into a formal partnership agreement,which sets down ground rules for what capital contributions arerequired from the partners, how the business will be managed, and howprofits and losses will be allocated, among other things.
In determining whether you want to operate as a partnership, you may want to consider the following factors:
- Liability: Each partner in a partnership is personally liablefor all the debts and obligations of the business, including liabilityfor your own unlawful acts and those of your fellow partners and employees.For instance, if your partner writes a defamatory article or postscopyright infringing material on your jointly-run website or blog, thenyou can be held personally liable, and the winning plaintiff can cancollect the judgment out of your personal assets, like your bankaccount or house. The same goes for a defamatory article or infringingpost published by an employee of the partnership in the scope of theemployment relationship.
- Formation and Dissolution: A partnership is relatively easy and cheap to form. Please see the Forming a Partnership section for details on the required/advisable steps. You and your partners should draft and execute a partnership agreement.Drafting one that is highly customized to your business may involvesome complexity. It will be up to you and your partners whether theassistance of a lawyer is required. Unlike a corporation, a partnership does not have a perpetual existence. Dissolution is provided for in the partnership agreement or happens with the death, retirement, withdrawal, expulsion, incapacity, or bankruptcy of a partner.
- Management Structure: As a general matter, apartnership allows for an informal, de-centralized management style,with partners exerting direct control over the day-to-day affairs ofthe business. Partners are free to customize the management structure inthe partnership agreement.
- Operation: A partnership is relatively easy and cheap to operate. Partners do not have to observe the extra "formalities" of a corporationand there are generally fewer record-keeping and reporting requirementsthan for corporations or LLCs. Partnerships must still meet those taxand other regulatory obligations imposed on all small businesses. Formore on the tax obligations of small businesses, see the Tax Obligations of Small Businesses section and the IRS's informational guide, Publication 583 (1/2007), Starting a Business and Keeping Records.
- Ownership of Assets/Distribution of Profits: Partnersgenerally do not own the assets of the business personally -- dependingon state law, either the partnership itself owns all business assets orthe partners are co-owners of partnership property. In either case, apartner that withdraws from the business is entitled to a share ofprofits and partnership assets after liabilities are taken intoaccount, and the same is true for all partners upon termination of thepartnership. Unless the partnership agreement provides otherwise,profits and losses are split up among the partners on an equal,per-capita basis. For example, if there are four partners, the profitsand losses will be split up one-quarter to each partner, absent anagreement specifying some other distribution.
- Among the most important assets of any business thatoperates a website or blog are its articles, posts, videos, and othercontent. For details on who owns what from a copyright perspective, seethe Copyright Ownership of Articles and Posts section.
- Tax Treatment: A partnership itself does not pay incometax. The profits or losses of the business "pass through" to thepartners, and they pay income tax on their proportional share of the income at theirindividual rates. In this way, the partnership as an entity is generally not subject to the "double taxation" associated with corporations. Subject to limitations, partners may be able to deduct certain partnership losses against personalincome from other sources, like a salary from a "day job," interest onsavings, dividends from other investments, and gains from the sale ofnon-business property. If a partner files jointly with a spouse, thesebusiness losses may also offset the spouse's income.
- Although the partnership itself pays no income tax, it must file an information return, Form 1065,annually with the IRS and provide the partners with a copy of their K-1. This return shows the partnership's income, deductions, andother required information, and must include the names and addresses ofeach partner and each partner's distributive share of taxable income.Relatively sophisticated accounting is required to accurately completethis form, and this could bump up operating costs for your business.For more information on the tax obligations of partnerships, see theIRS's page, Tax Information for Partnerships (includes links to forms and other resources).
If you are carrying on your online activities with a group of otherjournalists or bloggers (e.g., a co-blogging relationship) without aformal partnership agreement, it is still possible that a court coulddeem your group an informal legal or tax partnership, bringing with it potentialpersonal liability for the actions of your co-publishers. This risk isgreatly reduced, however, if your group does not intend to make aprofit, or if your revenues are all scrupulously re-invested in theenterprise without distribution to group participants. For details,please see the Informal Group section of this Guide. Eric Goldman's article, Co-Blogging Law, gives the definitive treatment of liability pitfalls for co-bloggers operating informally.
