Friendship is essentially a partnership. – Aristotle
[Partnership] – There are advantages and disadvantages in any business structure. Partnerships are not exactly the same as forming corporations or companies. Each association is defined by an agreement. Once you have settled on this business structure, it is important to know the differences. This article will define the different association structures. These structures are: (1) Partnership, (2) Limited partnership and (3) Limited liability company.
Camaraderie – voluntary association of two or more people as co-owners of a for-profit company.
A partnership may be formed voluntarily by direct action of the parties, such as through a partnership agreement or articles of partnership, or its formation may be implicit in the continuing conduct of the parties. Funding for a partnership comes from partners who initially contribute property, cash, or services to the partnership’s accounts. Each partner is both the principal and agent of the other partners and is responsible for both the acts of the others and of the others for the individual acts. A society does not pay taxes. Simply file an informational return. Each member has a duty to contribute their time to manage the association, unless otherwise agreed. A partner cannot transfer his membership status without the unanimous consent of the other partners. When a partner leaves, retires or dies, the partnership is dissolved, although it is not terminated.
Limited liability company it is a slight variation in the responsibility of those involved. The types of partners in a limited partnership include at least one general partner and one limited partner.
The limited partnership certificate is simply public disclosure of the formation and existence of the limited partnership; it does not deal with the many more rights and obligations that partners can agree upon among themselves. Both general and limited partners make contributions upon joining the partnership. The main advantage of a limited partnership is limited personal liability. Limited partnerships are taxed in the same way as general partnerships. The authority of the general partner in a limited partnership is the same as the authority of the partners in a general partnership. Transfer restrictions are imposed on the limited partner’s interests. Upon dissolution, a partnership can continue (assuming one general partner remains); but the partnership can also be terminated after dissolution.
Limited liability company – newer form of business organization, in which the liability of the partners is limited.
State statutes for an LLP are strict with formal requirements for its creation. As in partnerships and limited partnerships, LLP partners make capital contributions. In most states with LLP statutes, partners are protected from liability for negligence, wrongful acts, or misconduct by their partners. All LLP income is passed on or passed on to partners. Partners can manage without risking personal liability exposures because the LLP is identified as such and registered with the state. Transferability is restricted and governed by the same transfer principles for limited partnerships. Dissolution and termination are similar to the grounds for dissolution of limited partnerships with the requirement to notify the state.
Partnerships are relatively simple to set up and partners can share the initial cost. It is important that you define what type of partnership you want to have and take the time to develop a legal partnership agreement with a clear exit strategy. Understanding the differences is a step in the right direction to configure the structure that works best for you as you “Create Your Own Lane” in business success.