Final answer:
A partnership agreement defines the terms of a business partnership, such as investment amounts and management roles. Partnerships are easier to start and manage, with the benefit of no special taxes and the ability to attract investors, but have disadvantages like joint liability and limited life.
Step-by-step explanation:
A partnership agreement is a document used in business law that outlines the rights, responsibilities, and financial contributions of each partner in a partnership. This agreement specifies details such as how much the owners will invest, how profits and losses will be shared, and the management of the partnership. Unlike corporations, with a formal structure including stocks and articles of incorporation, partnerships are simpler to establish and manage, but partners share liability for each other's actions.
One of the positive aspects of a partnership is that it is easy to start up with a straightforward partnership agreement. There are no special taxes levied on the partnership itself as the income is passed through to the partners. It also becomes easier to attract investors due to the collective resources and shared responsibility.
However, partnerships also have some disadvantages. There is joint liability, which means that partners are legally responsible for the actions and debts of their co-partners. Additionally, the life of the partnership can be limited, as it may dissolve when a partner leaves or passes away unless new arrangements are made.
For those concerned about personal liability, a limited liability partnership (LLP) might be a preferable structure as it limits the partners' liability to their investment in the partnership, helping to protect personal assets.
Contrastingly, a corporation is a more complex business structure whereby the business is owned by shareholders who have limited liability for the company's debts but can share in its profits and losses. A corporation can issue stocks and bonds to raise capital and finance operations or new investments.