There are three relatively common partnership types: general partnership (GP), limited

partnership (LP) and limited liability partnership (LLP) A fourth, the limited liability
limited partnership (LLLP), is not recognized in all states. There are often distinct reasons why
business owners choose each of these partnership types, which are explained below.

General partnership:

A general partnership is a business arrangement by which two or more individuals agree to share
in all assets, profits and financial and legal liabilities of a jointly-owned business structure. Such
partners agree to unlimited liability, which means either of their personal assets may be liable to
the partnership's obligations. In fact, any partner may be sued for the entirety of a partnership's
business debts.

This potential liability from an unlimited liability arrangement is therefore not capped and can be
paid off through the seizure of an owner's personal assets. Furthermore, partners are responsible
for their own tax liabilities—including money earned from the partnership—on their personal
income tax returns, as taxes do not flow through the general partnership itself.

Understanding General Partnerships

General partnerships offer participants the flexibility to structure their businesses however they
see fit, giving partners the ability to control operations more closely. This allows for more swift
and decisive management, compared with corporations, which often must slog through multiple
levels of bureaucracy and red tape, which complicates and slows down the implementation of
new ideas.

A general partnership must satisfy the following conditions:

 The partnership must minimally include two people.

 All partners must agree to any liability that their partnership may incur.
 The partnership should ideally be memorialized in a formal written partnership
agreement, though oral agreements are no-less legally valid.

General partnership features:

In a general partnership, each partner has the agency to unilaterally enter into binding
agreements, contracts or business deals, and all other partners are consequently obligated to
adhere to those terms. Not surprisingly, such activities may lead to disagreements, and so many
successful general partnerships build conflict resolution mechanisms into their partnership
agreements.

Benefits of General Partnership

The cost of creating a general partnership is considerably cheaper than setting up a corporation
or a limited liability partnership like an LLC. General partnerships likewise involve substantially
less paperwork. Case in point: In the United States, filing limited partnership paperwork with a
state is generally not required, though certain registrations forms, permits and licenses may be
necessary at the local level.

Why choose a general partnership?

 Ease of creation.

No state filing is required. The partnership is created when the partners begin business
activities.

 Low cost of operation.

Because general partnerships are not formed by means of a state filing, they are not required
to pay a formation filing fee, ongoing state fees or franchise taxes. The partnership must
still obtain the business licenses and permits required for operation however.

 Few ongoing requirements.

Unlike corporations, general partnerships are not required to hold annual meetings of the
owners, issue partnership interest, and keep personal asset separate from business assets.
Having a partnership agreement that outlines how the partnership will be managed, the roles
of each partner, and what events will cause the partnership to end operations is
recommended.

What Is a Limited Partnership (LP)?

A limited partnership (LP)—not to be confused with a limited liability partnership—exists when

two or more partners unite to conduct a business in which one or more of the partners is liable
only up to the amount of their investment. Limited partners do not receive dividends but enjoy
direct access to the flow of income and expenses. The main advantage of this structure is that
owners are typically not liable for the company's debts.

Understanding Limited Partnerships

Generally, a partnership is a business owned by two or more individuals. There are three forms
of partnerships: general partnership, joint venture, and limited partnership. The three forms differ
in various aspects, but also share similar features.

Limited Partnerships Versus Other Forms of Partnerships

In all forms of partnerships, each partner must contribute resources such as property, money,
skills, or labor to share in the business's profits and losses. At least one partner takes part in
making decisions regarding the business's day-to-day affairs.
All partnerships should have an agreement that specifies how to make business decisions. These
decisions include how to split profits or losses, resolve conflicts, and alter ownership structure,
and how to close the business, if necessary.

Special Considerations: The Formation of a Limited Partnership

To form a limited partnership, partners must register the venture in the applicable state, typically
through the office of the local Secretary of State. It is important to obtain all relevant business
permits and licenses, which vary based on locality, state, or industry.

 A limited partnership exists when two or more partners unite to conduct a business in
which one or more of the partners is liable only up to the amount of their investment.
 There are three types of partnerships: limited partnership, general partnership, and joint
venture.
 Most U.S. states govern the formation of limited partnerships.

Advantages of a limited partnership

Limited partnerships are especially appealing to a business partnership where a single, limited-
term project is the focus—such as the film industry, real estate or estate planning. Advantages of
a limited partnership typically include:
 Limited liability protection. Limited partners are not typically held responsible for business
debts and liabilities.

 Pass-through taxation. Income tax is not paid by the business. Profits/losses are
reported on the partners’ tax returns, and any tax due is paid at the individual level.

 Control over day-to-day operations. General partners in the limited partnership have full
control over all business decisions.

 Flexible management. Partners have more flexibility in management structure.

 Fewer formal requirements. Limited partnerships face fewer formal requirements and
paperwork than corporations.

 Additional source of investment capital. Adding limited partners provides additional

sources of investment capital without losing control, as with a business partnership.

Limited Liability partnership

A limited liability partnership (LLP) is a partnership in which some or all partners (depending
on the jurisdiction) have limited liabilities. It therefore can exhibit elements
of partnerships and corporations. In a LLP, each partner is not responsible or liable for another
partner's misconduct or negligence. This is an important difference from the traditional
partnership under the UK Partnership Act 1890, in which each partner has joint and several
liability. In a LLP, some or all partners have a form of limited liability similar to that of the
shareholders of a corporation. Unlike corporate shareholders, the partners have the right to
manage the business directly.[1] In contrast, corporate shareholders must elect a board of
directors under the laws of various state charters.[1] The board organizes itself (also under the
laws of the various state charters) and hires corporate officers who then have as "corporate"
individuals the legal responsibility to manage the corporation in the corporation's best interest. A
LLP also contains a different level of tax liability from that of a corporation.

Limited liability partnerships are distinct from limited partnerships in some countries, which may
allow all LLP partners to have limited liability, while a limited partnership may require at least
one unlimited partner and allow others to assume the role of a passive and limited liability
investor. As a result, in these countries, the LLP is more suited for businesses in which all
investors wish to take an active role in management.

How is a Limited Liability Partnership Different from an LLC?

The most obvious difference between an LLP and an LLC is that the owners of an LLP, like
other partnerships, are partners. The owners of a limited liability company (LLC) are called
members.

Liability of owners is the biggest difference between an LLP and an LLC. Partners in an LLP are
not typically liable for the debts or negligent acts of another partner. Liability of members of an
LLC is limited to each member's contribution, without considering the liability of other members
or of the LLC as a whole. This protection is called a corporate shield or a corporate veil.

Some other differences between the LLP and the LLC:

Management. Members of an LLC can decide between member-management and hired

management, while partners in an LLP manage the partnership themselves.

Taxation. An LLC has several tax options; it can be taxed as a corporation or an S corporation.
An LLP can only be taxed as a partnership.

How to Form a Limited Liability Partnership

Like other types of partnerships, a limited liability partnership is formed in the state in which the
partnership does business. Most states have the business filings section in the office of the
secretary of state for your state or equivalent department.
The partnership must register as a specific LLC in the state, filing a form as a "limited liability
partnership" or similar type of declaration. The partnership should also create a partnership
agreement to spell out how to run the partnership and what happens in various circumstances.

Most states allow all professionals to form LLP's; a few states limit the ability to form an LLP to
accountants and attorneys.