Types of Partnerships - Explained
General, Limited, and Limied Liability Partnerships
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What are the Types of Partnership?
There are multiple types of partnership, including a general partnership, limited partnership, limited liability partnership, and joint venture.
What is a General Partnership?
A general partnership arises when two or more individuals carry on a business activity with the intent of sharing profits. By default, general partners share equal rights and responsibilities in connection with management of the business and split any business profits equally. Of course, these default rules can be changed through a partnership agreement. An important downside to a general partnership is that the partners are personally liable for any tort or contract liability of the business. This is scary for partners, as any general partner can bind the entire group to a legal obligation or create tort liability for the business. Although such personal liability is daunting, it comes with a tax advantage. Partnerships are not taxed directly. Any business profits pass through the business entity to the partners equally or as designated in a partnership agreement.
What is a Limited Partnership?
A limited partnership is a special type of partnership that must be registered with the state. It is made up of at least one general partner and at least one general partner. The rules governing the general partners are the same as those in a general partnership. The limited partners, however, enjoy special rights and are subject to specific limitations. The limited partner cannot take part in any business operations or decision making. This is the role of the general partner. If the limited partner takes an active management role, then she is automatically converted to general partner status. A limited partner has limited personal liability for the torts and contract obligations (debs) of the business. Her potential liability is limited to the value invested in the business; her personal assets are protected.
What is a Limited Liability Partnership (LLP)?
Limited liability partnerships (LLP) are another special entity form authorized by many states. An LLP must be registered with the state and disclose the names of all limited partners. The limited liability partnership is similar to a partnership, but each partner is limited in their personal liability for the torts or contractual obligations of the business or the other partners. Most states restrict the LLP entity status to service professionals, such as doctors, lawyers, accountants, architects, etc. States generally require that the partners maintain professional liability insurance for each service provider.
What is a Joint Venture?
Joint ventures are similar to general partnerships. The primary difference is that a joint venture exists solely for the execution of a single business objective, such as a specific business project. The business operations of the two partners are generally separate and there is less integration of effort between the joint ventures. This relationship limited the extent of liability for the acts of the other ventures. Further, it reduces the fiduciary duties among the ventures.
- Note: Joint ventures are normally arrangements between two existing business entities (such as LLC or Corps) that want to work together on a project. Individuals cooperating in this manner will likely be deemed partners.
- Business Entities (Intro)
- Why is studying business entities important?
- Considerations When Forming a Business Entity
- Holistic (Detailed) Overview of Setting Up a Business Entity
- What are Business Entities?
- What is a Closely-held vs Publicly-held Business?
What are the main types of business entity?
- What are the primary characteristics of business entities?
- What is Maintenance of a business entity?
- What is Control of a business entity?
- What is Compensation of business owners?
- What is Taxation of a business entity?
- What is Sales & Use tax?
- What are payroll and self-employment taxes?
- What are the major characteristics of a Sole proprietorship?
- Uniform Partnership Act
- Uniform Limited Partnership Act
- Partnership Agreement
- At-Will Partnerships
- Responsibilities of Partners to the Partnership
- Silent Partner
- Funding the Partnership
- How are Partners Compensated
- Splitting Equity in an Industrial Partnership
- What are the main characteristics of a Limited liability partnership?
- What are the main characteristics of a Limited liability company?
- Forming an LLC
- Articles of Organization
- Operating Agreement or LLC Agreement
- Why You Need an LLC Agreement
- LLC Compensation of Members
- LLC Taxation
- Converting to an LLC
- What are the main characteristics of a Corporation
- Articles of Incorporation
- What to include in the Articles of Incorporation
- Corporate Bylaws
- Exiting the Corporation
- Dissenter's Rights
- What are the requirements to be an S Corporation?
- Non-Profit Organization
- NonProfit Business Entities
- Private Foundation
- A Detailed Explanation of the Sole Proprietorship
- Taxation of Sole Proprietorship
- A Detailed Explanation of the General Partnership
- 50/50 Partnerships: Never a Good Idea
- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
- Public Limited Company (UK)