Additionally, the financial resources and credit of the partnership, probably more extensive than could be found in a sole proprietorship, are still limited to the resources of the partners. A general partner is subject to unlimited personal liability for debts and obligations of the partnership business, as is a sole proprietor, however, the general partner is also liable for wrongful action breaches of trust committed by other partners. A partnership offers advantages from a tax standpoint as well. Each partner has individual tax liability for a share of the partnership income, and a partner's share of partnership losses and expenses can be deducted from the partner's personal income. Further, partners can agree to allocate income, deductions, credits, and gains or losses in proportion other than their capital interests.
Partnerships do, however, present some tax related difficulties.
First, the taxable year for a partnership must be determined by a specific formula. Second, partners are taxed on a share of the partnership income whether or not said income is distributed. Finally, partners have less opportunity to take advantage of fringe benefits available to the employees of the partnership. Thus, a corporation has an individual, perpetual existence, and its owners, known as shareholders, may come and go without affecting the legal status of the corporation. Corporations are liable for their own obligations, and the individual assets of the shareholders may not be reached for satisfaction of those obligations normally.