Starting a business is time-consuming and expensive, which is why many people choose to start up a company with a partner. Each additional partner adds resources and knowledge to the business that can help it succeed. If you plan to organize your company as a partnership, learn the various types you have to choose from.
General Partnership
A general partnership is the basic type of business organization that includes two or more people, called "general partners." Even if the company is not registered with the state, two people operating and owning the business are a general partnership. With this type of partnership, each person is personally liable for business debts and obligations. The liability and responsibility is equally split between each partner. Also, each person who owns the business can make decisions regarding the company, including signing agreements for the business.
Limited Partnership
A limited partnership is a company that has both general and limited partners (at least one of each). Limited partners play a passive role in business operations and do not have the same liability or responsibility as general partners. Unlike general partners, limited partners do not usually have to pay self-employment taxes if they maintain a passive role in operations.
Limited Liability Partnership
The limited liability partnership is an organization where all owners enjoy limited liability when it comes to business debts and obligations. That means that each individual partner is not held responsible for the actions or obligations of other partners while operating the business. For instance, if one partner acquires a new debt, he alone is responsible for that obligation.
Summarizing the Differences
In short, in a general partnership all partners have full liability, while in a limited or limited liability partnership one or more partners do not have the burden of liability for being associated with the business. A company must register with the state to form a limited or limited liability partnership, unlike a general partnership. Regardless of the type of partnership you choose, you usually must draw up and sign a formal partnership agreement that details the arrangement between the owners.
