C. Partnerships

In a partnership, two or more people share ownership of the business.  Each contributes something – money, property, labor or skill – and each shares in the profits and losses of the business.  There are three main types of partnerships: (1) general partnerships, (2) limited partnerships, and (3) limited liability partnerships.  In a partnership, profits are allocated and taxed on the individual (partner) level.

            General Partnership: In a general partnership, everything is divided equally unless otherwise stated in a partnership agreement.

            Limited Partnership: A limited partnership is very similar to a general partnership except that, in addition to general partners who have full control over the business, there are also limited partners.  Limited partners are protected from personal risk and usually have little to no management authority.  The primary partner(s) continues to be responsible for all the risk.  Limited partners are paid a return on their investments according to whatever percentage is agreed upon in the partnership agreement.

            Limited Liability Partnership: In this form of partnership, liability is generally limited to the business assets (items owned).  Although it varies by state, typically the personal assets of the partners cannot be used to satisfy the business’s debts and liabilities.  In some states, the limited liability partnership is only available to certain professions such as attorneys, accountants, and doctors.  The form of partnership is an attractive entity for certain professionals since it offers limited liability protection, but retains the flexibility and tax benefits of a partnership.