This lesson reviews the background and basics of partnerships in four separate parts. In the first part you will learn about the legal definition of a partnership, as well as the different types of partnerships that are common today. Next, you will review the conceptual legal framework that guides nearly every tax rule for partnerships. Then using this framework, you will learn about special basis concepts that only apply to partnerships and make the single taxation of income possible. Finally, you will learn about a variety of other partnership issues such as, separately stated items, allocation of partnership items, and tax compliance procedures. Let's begin with an obvious question, what is a partnership? Like corporations, partnerships are defined and formed under State law. Overall, a partnership can be defined as, an association formed by two or more persons to carry on a trade or business, with each contributing money, property, labor, or skill, and with all expecting to share in profits and losses. Section 761 and 7701 also provide that a partnership as, any syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate. Thus for an entity to be viewed as a partnership, it must be unincorporated and cannot otherwise be classified as a corporation, trust, or a state. Makes sense. As with most code sections, the term "Persons" is construed to mean and includes, an individual, trust, estate, association, company, corporation, or partnership. As such, any of these entities can both form and be a partner in a partnership. There are several different types of partnerships which are mostly distinguished based on the participation and or liability of partners. For instance, general partners routinely participate in the management of the partnership and can be held responsible for some debts. In contrast, limited partners do not typically participate in partnership management, and are only liable for partnership debts to the extent of unfulfilled partnership contribution obligations. Along these lines, general and limited partnerships are rather common in practice. A general partnership consists of two or more partners who are general partners and who may manage the entity. There are no limited partners in a general partnership. This type of partnership is often used for operating activities as well as joint ventures between two or more corporations. A limited partnership is a partnership with at least one general partner and one or more limited partners. These entities often have numerous limited partners, and commonly conduct risky activities including, research and development activities, real estate development, oil and gas exploration, and financial product investments. To further mitigate liability, general partners in a limited partnership, are often other business entities that offer liability protection such as, a C corporations. Other types of partnerships also exist. For example, you will learn more about limited liability companies, and limited liability partnerships later in this course. Regardless of partnership type, a legal agreement is signed by each partner or designee. This agreement is immensely important as it outlines the rights and responsibilities of the partners. From a tax perspective, it establishes the allocation of income, deductions, and cash flows. It also explains the initial and future contribution requirements, conditions for termination of the partnership, and a host of other important items. Therefore, when considering partnership tax implications, the partnership agreement, or operating agreement in the case of a limited liability company, is a key source of information. The taxation of partnerships is governed by Subchapter K of the Internal Revenue Code. But recall that the Check-The-Box Regulations allow any unincorporated entity with two or more owners to choose how they want to be taxed, in this case, as a partnership, or a C corporation. Therefore, while general partnerships, limited partnerships, and limited liability partnerships are treated as partnerships by default, they can Check-The-Box on form 8832 and receive C corporation tax treatment instead.