When starting a business, one of the decisions owners must make is determining how to structure. Of the available options, ventures with more than one owner often consider organizing as partnerships.
To help determine the right structure type for their needs and goals, it behooves entrepreneurs and business owners to understand how the different types of partnerships, general and limited, differ from each other.
General partnerships
According to New York City Small Business Solutions, in a general partnership, two or more entities share ownership of the business. As co-owners, these entities have full power to conduct business on the partnership’s behalf, meaning they have the ability to enter agreements, take out lines of credit and perform other such tasks in the name of the company. In addition to sharing ownership, the owners of partnerships also share liability for the business’ decisions and debts. Individuals, associations, corporations and even other partnerships may become partners in this type of structure.
Limited partnerships
Limited partnerships have general partners, as well as limited partners. While the general partners have the same rights and responsibilities as with a general partnership, limited partners do not share these same abilities and obligations. Instead, they cannot participate in the management of the business. Additionally, they only bear liability up to the extent of their investments. Forming a general partnership does not require any formal paperwork, however, to form a limited partnership, the owners must draft, sign and file with the state a written partnership agreement and certificate of the limited partnership.
The way they organize their companies will affect all manners of their businesses – from how they get taxed to how they operate day-to-day. Therefore, owners must use care to choose the organization type best suited for their circumstances and business objectives.