There are four relatively common partnership types:
• General Partnership (GP),
• Limited Partnership (LP),
• Limited Liability Partnership (LLP) and
• Limited Liability Limited Partnership (LLLP)
A partnership exists when there is more than one owner of a business, and that business is not incorporated or organized as a limited liability company. The partners share in the profits, losses, and liabilities of their enterprise, with the percentages dictated by written agreement. The partners could be individuals, corporations, trusts, other partnerships, or any combination of these examples. One of the biggest disadvantages is that the owners have unlimited liability for all legal debts and obligations of the company. Additionally, each of the partners acts as a representative, and as such, can commit the company to obligations without approval of the other partners. Liability caused by one partner leaves all partners vulnerable to lawsuits. Further, the tax advantages aren’t as significant as they are with a corporation. Business income and losses are reported on the individual tax returns of the owners.
Keep in mind that general partnerships offer no liability protection to the owners. The owners are legally considered the same as the business, and personal assets can therefore be considered business assets. Additionally, partners in a general partnership bear responsibility for the actions of the other partners. General partnerships are undoubtedly the easiest to create and have the lowest ongoing costs, but they also provide the highest risk to the partners
General Partnerships (GP)
In a general partnership, the partners manage the company and assume responsibility for the partnership’s debts and other obligations.
Keep in mind that general partnerships offer no liability protection to the owners. The owners are legally considered the same as the business, and personal assets can therefore be considered business assets. Additionally, partners in a general partnership bear responsibility for the actions of the other partners. General partnerships are undoubtedly the easiest to create and have the lowest ongoing costs, but they also provide the highest risk to the partners.
Limited Partnerships (LP)
A limited partnership has both general and limited partners. The general partners own and operate the business and assume liability for the partnership, while the limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as the general partners.
The General partners are exposed to personal liability to the same extent as they would be in a General Partnership. In other words, the General partners may be personally liable for the acts of the other partners in their dealings with third parties.
The Limited partners, however, may benefit from personal asset protection to the extent that they are not managing the partnership and will only be liable up to the amount of their investment in the company.
The Limited Partners must register their information and the amount of their investment with the appropriate state entity. In addition, the Limited Partner must disclose this “Limited” status to any third parties transacting with the partnership.
Limited Liability Partnership (LLP)
Professional service businesses. Limited liability partnerships (LLPs) can only be created by certain types of professional service businesses, such as accountants, attorneys, architects, dentists, doctors, and other fields treated as professionals under each state’s law.
The personal assets of the partners in an LLP typically cannot be used to satisfy business debts and liabilities. The LLP does not shield the partners for liability for their personal acts. Put simply, the LLP cannot limit the liability of owners for their own malpractice
Limited Liability Limited Partnership (LLLP)
An LLLP is a Limited Liability Limited Partnership. There are two big benefits of this entity. First, it protects the partners from liability when the partnership is exposed to a lawsuit. Second, it provides asset protection. That is, when someone sues a partner, personally, it protects the assets inside the partnership from being taken by the judgment creditor of a partner. So, whether the lawsuit comes from within the company or directly attaches a partner, the LLLP can provide a legal barrier.
If you’re considering forming a Partnership…We Can Help!
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