A partnership is the relationship between two or more persons who work to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

There are generally two types of partnerships: general partnerships and limited partnerships. In a general partnership all partners have personal liability for the obligations of the partnership. In a limited partnership, there is typically (1) a general partner who manages the business and has personal liability for the obligations of the partnership, and (2) one or more limited partners who do not participate in the management of the business, and whose liability for the obligations of the partnership is limited to the partner’s capital contribution.

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, any profits or losses pass through to its partners. Each partner includes their share of the partnership's income or loss on their tax return.

Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

In California, a partnership is formed when two or more individuals engage in a business for profit. Partnerships are governed by the California Revised Uniform Partnership Act for general partnerships and the California Revised Limited Partnership Act for limited partnerships. In a general partnership, all partners share equal responsibility for the business's debts and obligations, and their personal assets may be at risk. Conversely, in a limited partnership, the general partner(s) manage the business and are personally liable for debts, while limited partners have liability limited to their investment and do not partake in management. Partnerships themselves do not pay federal income taxes; instead, profits and losses are 'passed through' to the partners, who report them on their individual tax returns using Schedule K-1 (Form 1065). It is important for partnerships to comply with both federal and state tax filing requirements, including furnishing Schedule K-1 to partners in a timely manner. An attorney can provide specific guidance on forming and operating a partnership in California, ensuring compliance with all legal and tax obligations.