What Type Of Business Is A Partnership?

A partnership business refers to two or more people who amalgamate their resources to set up a business. The parties also agree to share not only the profits but also the losses and risks that arise with the involvement of the business. Some of the common business partnership examples are physician groups, law firms, real estate investment firms, and others.

Different Types Of Business Partnerships

Fundamentally, there are four types of partnerships namely: 

  • General Partnership
  • Limited Partnership
  • Limited Liability Partnership
  • Limited Liability Limited Partnership

General Partnership:  A general partnership is when two or more people run a business together and are equally responsible for its debts, liabilities, and profits/losses. The drafting of a partnership agreement is essential for determining the rights, responsibilities and obligations of all partners.

Limited Partnership (LP): In this partnership, one partner has unlimited liability and is responsible for the partnership’s debts and liabilities. The other partners are limited partners, who are liable only for the amount of money they have invested in the partnership. Limited partnerships are popular with real estate investors and venture capitalists. The management of operations is divided among the partners according to the terms of the partnership agreement. Each partner has a specific role and responsibility, and must abide by the terms of the partnership agreement.

Limited Liability Partnership (LLP):  A limited partnership is the same as a general partnership, except that one or more of the partners (called limited partners) have limited liability for partnership debts. Limited partners are only responsible for the amount of money they have invested in the partnership. This is a common business entity for lawyers, architects, and other professionals. The benefit of an open LLP is that it offers limited liability to its partners, thus protecting them from personal liabilities of partnership debts.

Limited Liability Limited Partnership (LLLP): These are an emerging form of partnership business. This type of partnership provides safety against liability for all partners, and places more responsibility on the manager of the business.

In conclusion, a partnership business is a form of business wherein two or more people share ownership and management responsibilities. The type of partnership chosen will depend on the needs and objectives of the business owners as well as their desired level of risk/liability.

A Los Angeles business lawyer can give you key insights on which business partnership will be most suitable for you and can also provide advice on liability protection.

Business Partnership

Which type of business partnership is most suitable for you?

LLC partnerships are an ideal choice for business partners who are looking for liability protection while still managing all the day-to-day business operations. Limited Liability companies are a perfect choice for most people. 

In a limited partnership, there are several benefits, such as the general partner retaining the decision-making power, and there being more opportunities for the general partners. The primary benefit of LP is that limited partners get legal protection no matter how much they are investing in their business.

A general partnership has some benefits to offer, such as being easy to form and requiring low cost to function. The tax is flexible, and it can be owned by both corporations and individuals.

How to legally form a partnership?

There are several steps to form a partnership, which must be followed by all businesses in order to comply with all requirements. These steps include tax and registration requirements, as well as others, such as:

  • Choose a partnership name 
  • Filing a unique business name
  • Draft a partnership agreement and sign it
  • Obtaining permits and licenses clearances
  • Getting an Employee Identification Number (EIN)

After completing these steps, you can register your EIN online at the IRS website. With the help of a Los Angeles business lawyer, you can ensure that all paperwork is completed correctly and in compliance with the law.

How are partnerships different from other business entities?

A partnership like a sole proprietorship cannot be separated from its owners either financially or legally.  However, profits and losses may be passed through the owner’s personal income only for tax purposes. Along with these, the debts and liabilities can also be passed on. 

Moreover, partnerships are less costly to create in comparison to corporations. There is an added benefit of pass-through taxation, which means you pay less tax in comparison to other business structures.

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