Other Partnerships
General Partnerships
A general partnership is the most basic partnership entity and does not require registration with the state. Partners form their business once they sign a formal partnership agreement. In a general partnership, ownership and profits are split equally between the partners unless different terms are outlined in the partnership agreement. In addition, in a general partnership, all partners have equal power to secure contracts and financing. Likewise, each partner also has equal liability and is responsible for the business’s debts and legal obligations. General partnerships are typically simple to form and dissolve. There is no limit to the number of partners a general partnership may have. Owners of a general partnership are not considered employees of the company. They typically get paid by taking owner draws (withdrawing funds from their business for personal use).
Limited Partnerships
Limited partnerships are formal business entities governed by the state. Limited partnerships typically are formed by partners who want investors to help fund their companies but wish to avoid the expense and compliance requirements involved in creating a corporation or LLC. In a limited partnership, at least one general partner and one or more of the limited partners provide funding but are not actively involved in the business’s operations. The general partner or partners are solely responsible for the operations, management, and liabilities, while the limited partners are not responsible for their debts and liabilities. Limited partners share in the business’s profits but must never lose more money than they’ve invested. Limited partners cannot participate in the business’s operations, or they lose their limited partner status.
Limited Liability Partnerships
A limited liability partnership is a form of business structure used primarily by professionals like attorneys, accountants, physicians, engineers, dentists, and architects. A business must have at least two partners to form a limited liability partnership, and usually, the partners must be licensed in the same profession. The limited liability partnership gives all partners the responsibilities of general partners, but all partners have limited personal liability for the business’s debts. Not all states allow the formation of limited liability partnerships, and some states limit the structure to specific industries. In California, Nevada, New York, and Oregon, professionals must form an LLP by registering as a Professional Limited Liability Partnership (PLLP). The limited liability partnership combines the benefits of a partnership and a corporation and provides liability protection, management flexibility, and potential tax advantages. The amount of personal liability protection that partners receive in an LLP varies from state to state.
Limited Liability Limited Partnership
A newer type of partnership, the limited liability limited partnership (LLLP) is a hybrid of partnership entities and most often is found in the real estate industry. A traditional limited partnership requires the general partner (or general partners) to be personally responsible for the business. The LLLP allows the general partners to have limited risk. This type of entity is popular for investor groups building large projects such as hotels, commercial buildings, or apartment communities. LLLPs are currently only authorized in about half the states in the country.