• You can hire employees, but you are not considered an employee of your own business. • You have unlimited personal liability — your personal assets can be used to pay business debts. Tip: If a married couple wants to jointly own a business, they must form a partnership, corporation, or limited liability company (LLC) . Only one spouse can legally be the owner in a sole proprietorship. Partnership A partnership is formed when two or more people agree to run a business together. Each partner shares in profits, losses, and management. General Partnership Key features: • Each partner has equal rights to manage the business. • Each partner is personally responsible for all debts and obligations of the partnership. • Income and expenses “pass through” to the partners and are reported on their individual tax returns. The partnership itself files an information return using IRS Form 1065 and provides each partner a Schedule K-1 . • A written partnership agreement typically defines profit and loss distribution, management responsibilities, and other operational matters. A married couple who jointly operate an unincorporated business and who file a joint federal income tax return can elect not to be treated as a partnership for federal tax purposes provided that the husband and wife are the only members of the joint venture and materially participate in the running of the business. For more information refer to the Business Income Tax Returns section of this Guide. L imited Partnership (LP) • Includes at least one general partner (who manages the business and has full liability) and one or more limited partners (who invest money but have limited liability). • Limited partners can take part in management in Minnesota without losing limited liability protection, but they cannot bind the partnership unless allowed by agreement. • LPs must file a Certificate of Limited Partnership with the Minnesota Secretary of State (Minn. Stat. Chapter 321). Tip: Partnerships can be flexible and low-cost, but because of shared liability, partners should always create a written partnership agreement outlining roles, profit-sharing, and decision- making. Note: Most significantly, general partners pay self-employment taxes; limited partners do not. In the 2025 U.S. Tax Court case of Soroban Capital Partners v. Commissioner the Court described this situation. “The limited partners were essential to generating the business’ income. They
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