Limitation of partnership is a form of business ownership where each partner contributes resources and shares in the profits. This is a more informal arrangement than a corporation and does not require much paperwork to establish. However, there are several limitations to this type of business structure that should be considered before making a commitment to one.

What is a major problem with partnerships?

The most significant limitation of a partnership is that each partner is considered an agent for the others and can be held liable if the company fails to pay debts. This means that personal assets can be seized to cover outstanding debt, which is something that individuals in corporations are not exposed to.

Another limitation of a partnership is that it is difficult to transfer a partnership interest without the express knowledge and consent of all partners. This can cause problems when a member leaves or wants to sell their share of the business. This is in contrast to the ease with which shares in a corporation can be transferred.

Finally, a limitation of a partnership is that it can be difficult to raise capital for the business. Unlike a corporation that can issue stock, partners must invest their own personal assets into the business and therefore have limited financing options.

For taxable years beginning in 2019 or 2020, each partner may treat 50% of their allocable share of excess business interest expense (EBIE) as an unrestricted deduction. This percentage may be adjusted in future taxable years by applying the section 163(j) limitation at the partner level.