Partnerships

There are two types of partnerships - general and limited. The main difference is who has invested money.

In a general partnership, you and at least one more person pool your resources and run the partnership. In contrast, in a limited partnership, you could have some limited partners who contribute capital as a passive investment as well as general partners who are active in running the company.

Limited partnerships must file a certificate in the state of operation. While general partnerships require no filing, it is recommended that you have a written partnership agreement to prevent misunderstandings. These agreements should include:

• name and location of business
• identities of partners
• nature and scope of business
• term of partnership
• capital contributions of each partner
• formula for division of profits and losses
• partner responsibilities
• restrictions of the authority
• salaries, and
• means for withdrawal of a partner.

In general as well as limited partnerships, each general partner's entire personal resources are at risk for debts and obligations. When limited partners do not participate in the control of the business, they are not liable for any obligations beyond their capital investment.

In addition to financial risk, you should consider other potential disadvantages of a general partnership such as the dissolution of the partnership upon death of a partner, shared management and control, and limited transfer of interests without consent of all partners.

Partnerships might be a good option for your business if you are just starting out, but you should also consider a new option described below, the limited liability company (L.L.C.). The L.L.C. is designed for small businesses and gives you some of the protections of a corporation.