I am writing this post about types of partnerships because of a question that I answered on Quora. Please see Why would a group of people organize their business as a partnership?
in the U.S., there are different types of partnerships.
General Partnership (GP)
In a general partnership, each partner has unlimited personal liability. Furthermore, each partner can create such liability for the partnership, thus for all of the other partners.
Prior to the invention of limited liability companies (LLCs) starting in the 1970s, there was an incentive to form GPs because they have fewer formal requirements than corporations.
However, nowadays we have LLCs, which are almost as simple to form as general partnerships and offer limited personal liability, thus there is no good reason to form a GP. (Please note, however, that it is possible to accidentally create a general partnership – see.)
I have had my law practice for close to 14 years. I have formed countless corporations and LLCs for clients. Nevertheless, I never have formed a general partnership, and I expect that I never will.
Limited Partnership (LP)
In a limited partnership, there are one or more general partners who control the business and have unlimited personal liability. In addition, there are one or more limited partners (investors) whose potential liability is limited to the amount of their investment.
LPs are used in certain limited-term investment scenarios, such as real estate and venture capital funds, rather than for ongoing businesses.
Limited Liability Partnership (LLP)
Some states have limited liability partnerships for professionals such as lawyers.
LLPs let all of the partners manage the partnership’s activities while offering each partner limited personal liability. This means, perhaps most notably, that each professional is responsible for his or her own malpractice but not for a partner’s malpractice.
Summary re Types of Partnerships
In summary, there are three different types of partnerships that have their respective roles in the business world.
The limited partnership and the limited liability partnership have their respective niche uses.
As concerns general partnerships, however, it is difficult to figure out why a knowledgeable person would want to form one.
Check out all posts about partnerships.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.