In simplistic terms, a partnership is a sole proprietorship, except that the partnership is owned and managed by more than one owner. The increase to two owners can complicate planning considerably. There are several kinds of partnerships:

General Partnership
Limited Partnership
Limited Liability Partnership

 

 

General Partnership

 

A general partnership has two or more owners, all of whom are "general" partners, and all of whom are personally liable for the debts and expenses of the partnership, including the acts of their partners. Usually, the partners share equally in the profits and losses of the business, but they can agree to a different "split" by stating their sharing arrangement in a written partnership agreement.

 

The general partnership form of business is used by a few small businesses and service groups whose owners want to avoid the tax consequences that result from corporate ownership, and are willing to accept personal liability.

 

 

 

Limited Partnerships

 

A variation on the general partnership theme is the limited partnership (LP)(which is not the same as a limited liability company, or the limited liability partnership). An LP is a form of business entity that is designed to cure one of the primary disadvantages of the general partnership: the "unlimited liability" problem.

 

A limited partnership has one "general" and one or more "limited" partners. The general partner is responsible for the management of the partnership and receives a share of partnership profits and losses. The limited partners share in the profits and losses, but are not permitted to have any management responsibilities. In return, their liability is limited to their respective capital contributions to the partnership. The general partner has unlimited liability.

The limited partnership form of business is most often used for specific projects, for which a developer (the general partner with technical and management expertise) wishes to attract investors (limited partners) who do not want the risk of personal liability and don't want to participate in management.

 

Limited Liability Partnerships

 

A relatively new form of business organization is the registered limited liability partnership -- the LLP (not to be confused with either the limited partnership or the limited liability company). Partners in an LLP have less liability than partners in a general partnership. LLP partners are not liable for the negligence of their partners, but are still personally liable for their own negligence.

 

LLPs are used primarily by large national accounting firms as well as some other professionals, including lawyers (as an alternative to the professional corporation and the professional limited liability company).

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