Partnership

Partnerships are like the S-Corp in that the Tax Return is an informational return.  The form K-1 reports the partnership's income or loss and is given to each partner.  Partners pay both self-employment and income taxes on their personal returns, which usually means they pay estimated quarterly taxes. Some expenses, like health insurance, are not deductible to the partnership but are passed through on the K-1 to the partners.

Partners are not employees and take draws against earnings instead of receiving a salary.  Partners are considered "general partners" and are personally liable for any torts or debts of the business, as well as actions of the other partners.  To become a partner in a partnership, the person makes a financial investment in the business which then determines the partner's ownership percentage.

The partnership should have a partnership agreement, buy/sell agreements and succession documents on file at time of forming the partnership. Succession agreements are especially necessary in a two-person partnership because the death of one partner effectively terminates the partnership.