Types of Business Partnerships
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Learn more about the types of business partnerships below:
You will find more information about the various types of business partnerships, the people typically involved in them, steps to forming a partnership, along with the advantages & disadvantages of various partnerships.
A partnership is a single business where two or more people share ownership. In a partnership each person contributes to all aspects of the business, sharing the profits and losses of the business as well. The structure of how many people make up the partnership and their individual responsibilities breaks down into three subcategories.
A General Partnership
An association of two or more persons that carry on as the co-owners of a business in order to generate a profit. The default rule is equality between all members and the only way to change this is through a formal writing. Each partner possesses an equal voice in management and the authority to act as agent for the partnership. Each partner can be held liable for all debts of the partnership, and for torts committed by other partners within the course of the partnership’s business.
A Limited Partnership
A partnership formed by two or more person having one or more general partners and one or more limited partners. A limited partner has no voice in the active management of the Limited Partnership, which is conducted by the general partner(s). Every limited partner’s liability is limited to the capital he has contributed to the partnership.
Limited Liability Partnership
Each partner has equal management rights and is an agent for the business. Only the LLP is liable for business obligations. All partners are liable for their own tortuous conduct and for those they supervise.
Forming a Partnership
To form a general partnership at common law, nothing more than an agreement between two people is needed. Typically, most people put this into a written agreement for legal and operational purposes. To form any other partnership you must file paperwork to register your business with the state, generally done through the Secretary of State’s office.
Additionally, you will need to establish and register a business name along with complying with all state regulations. Taxation issues become increasingly complicated as more people are added to a business, making it essential to do legal research on the financials of a partnership to comply with federal/state law.
Advantages of a Partnership
· Liability issues within a partnership are much better than a sole proprietor as you can allocate limited partners with significantly less liability
· A partnership disperses the burdens of a business among several people, which typically will also increase the chance of success when resources are pooled together
· It is easy to change your legal structure later in the life of a company, and is very easy to form in the beginning
· Receiving credit will be easier with two people rather than just having one person, which means more capital is available for your business
Disadvantages of a Partnership
· The pros of having more people in a business can also complicate decision-making and decrease profits
· Liability may be less for limited partners, however, general partners retain full liability among the owners for their own actions as well as all other general partners
· Disagreement between equal sharing partners is one of the biggest reasons company dissolve
· A partner who chooses to leave will be costly as you will have to value their assets and replace that essential person who has taken on a lot of liability/responsibility
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