What Kind of Partnership is Right for You?
What if a corporation or a LLC is not the best fit for your business? Consider the possibility of forming a partnership. Choosing the right kind of partnership for your business can become a difficult decision when you are not sure about the advantages and disadvantages of each one. There are three types of partnerships: General Partnership, Limited Partnership and Limited Liability Partnership. Below is an overview of the three partnerships, including the advantages and disadvantages of each one:
1. General Partnership (GP): A partnership where liability, management tasks and profits are equally divided between both partners, unless stated in a partnership agreement.
- The partnership agreement does not need to be filed with the Secretary of State.
- Unlimited liability: both partners are responsible for all debts accrued by the business.
2. Limited Partnership (LP): A partnership where there is at least one limited partner and at least one general partner. The general partner is personally liable for accrued business debts and is responsible for daily, operational tasks. The limited partner’s responsibilities are much different:
- Aside from financial contributions to the business, limited partners are not involved with the kinds of tasks carried out by general partners.
- Limited liability: not personally liable for business debts, but any financial investments can be lost.
- When it comes to income taxes there are no self-employment taxes.
Tax requirements for both partners: taxes are reported and paid individually by both partners based on the share of profits each year (much like a general partnership).
3. Limited Liability Partnership (LLP): This kind of partnership is usually formed by professional businesses, such as law firms.
- Limited personal liability for all partners.
Both a LP and LLP will need to have a partnership agreement filed, in addition to other formation documents, with the home state’s regulatory authority. A partnership agreement is a contract between business partners that outlines the purpose, responsibilities and terms of the business as well as capital each partner contributes. When you form a partnership with us, a sample partnership agreement is included in your formation package.
SunDoc Filings is not a law firm. The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
Overview of the three types of partnerships, General Partnership, Limited Partnership and Limited Liability Partnership, with advantages and disadvantages of each.