A partnership refers to two or more people who combine their resources to set up a business. The parties agree to share not only the profits but also the losses and risks that may arise from involvement with a business. Some of the common business partnership examples are physician groups, law firms, and real estate investment firms.
There are four fundamental types of partnerships, namely:
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 type of 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 that 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 liability 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 that 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 protects them from the personal liabilities of partnership debts.
Limited Liability Limited Partnership (LLLP): This is a newer form of partnership business. This type provides safety against liability for all partners and places more responsibility on the manager of the business.
The type of partnership you should choose depends on your needs and objectives as well as the desired level of risk or liability. A Los Angeles business lawyer can give you key insights on which business partnership is most suitable for you and can also provide advice on liability protection.
The answer to this question depends on your needs and goals and those of your partners. In a limited partnership (LP), there are several benefits, such as the general partner retaining the decision-making power, and allowing more opportunities for the general partners. The primary benefit of LP is that limited partners get legal protection no matter how much they invest in their business.
A general partnership has some benefits to offer, such as being easy to form and requiring low cost to function. Tax liability is flexible, and it can be owned by both corporations and individuals.
There are several steps to form a partnership that must be followed in order to comply with all requirements. These steps include tax and registration requirements, as well as others, including:
After completing these steps, you can register your EIN online at the IRS website. And with the help of a Los Angeles business lawyer, you can ensure that all paperwork is completed correctly and in compliance with the law.
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.
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.