Types of Partnerships: Everything You Need to Know
Various types of partnerships exist, including limited partnership, limited liability partnership, joint liability, limited liability, and joint ventures.3 min read updated on January 01, 2024
What Are the Types of Partnerships?
Various types of partnerships exist, including limited partnership, limited liability partnership, joint liability, limited liability, and joint ventures. The most important thing to remember is that partnerships are agreements between two or more parties to achieve a particular business goal. General partnerships are:
- Equal agreements
- Various responsibilities can be delegated among members
- Partnerships force all parties to share certain risks and rewards during business endeavors
For instance, a partner can handle the investment angle by pouring capital in the business, while another can act in a management capacity. In addition, a single partner can bind group partners into a single legal obligation. Under partnerships, each party takes responsibility for individual obligations or debts.
Limited Partnerships (LPs)
A limited partnership allows each partner to restrict personal liability to the amount of his or her business investment. Such an arrangement requires one individual to take the role of general status, opening his or herself up to potential personal liabilities, while the limited partner takes less of a risk. However, the general partner retains control of the business, and the limited partner is usually not involved in management operations.
Limited Liability Partnerships (LLP)
LLPs come with tax advantages in the same manner as general partnerships combined with liability protections. For example, individuals are not responsible for any debts or liabilities arising from the business. LLPs are usually found among law or accounting partnerships. Where taxation is concerned, the IRS recognizes such businesses as partnerships and allows members to file taxes individually on personal returns. GPs, LLPs, and LPs are taxed in the same manner, but partnerships do not pay taxes.
LLPs permit members to work together while retaining a measure of independence when it comes to liability. With that, not all parties are held equally responsible, and other members are not held liable for the actions of others. Before engaging in any type of partnership, know the terms before agreeing or signing any document.
Limited Liability Protection
If you are concerned about limited liability protection, remember that general partnerships do not afford you any protective measures. In a general capacity, partners can be held responsible for actions or decisions of other partners. General partnerships pose the highest risk to general partners, but they are the easiest to create. LLCs have become a popular alternative to general partnerships. LLCs are ideal for those who wish to invest in a business, but do not want face exposure to any legal ramifications.
Joint Ventures as Partnerships
According to the Small Business Administration, a joint venture is another form of partnership. Joint ventures occur when various entities converge in pursuit of a set goal. For example, businesses may forge a partnership to construct a building.
Qualified joint ventures are a special partnership that allows spouses to co-own a business but to file separate returns to avoid partnership returns.
A joint liability partnership holds all partners equally liable for any financial and legal issues. Joint liability partnerships bind all parties into equal liability. Moreover, each party can be held responsible in pending lawsuits or other legal consequences. Joint liabilities are different than several liability concepts in the respect that partnerships are held on equal footing at all times.
Several liability, on the other hand, is the agreement to settle any legal disputes and is based on a partner’s standing or contribution to a partnership.
Limited Liability Company
A limited liability company (LLC) offers both the most benefits and the most protection for a business owner.
A limited liability company allows members to forge a single entity while taking advantages of liability protection. LLCs provide the same tax havens as partnerships, but with the added liability benefits of a corporation. Corporate law dictates that corporations are held liable for startup investments only. For example, a $10 million business does not give others the right to sue you for over $2 million if you started that business for only $2 million.
The LLC provides for the same tax protection as a partnership, but also gives the liability protection of a corporation. Under corporate law, a corporation is only liable for the total startup investment in the company. Also, certain states allow members to create what is known as a Professional LLC, which gives certain professionals such as doctors or lawyers more limitations than regular businesses.
If you need more information about different types of partnerships, you can post your legal need on the UpCounsel marketplace. UpCounsel lawyers specialize in business structures and partnerships and will help you find the best solution to maximize your success. UpCounsel lawyers have worked with such companies as Airbnb and Google.