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Partnership
Most partnerships are general partnerships, which means that each member
is equally authorized to act on behalf of the company and each partner
is liable for the partnership's debts. General partnerships are not taxed
on income - the partners alone pay income tax. Probably, the most common
form of a general partnership is an oral partnership - with or without
a handshake - at times a court may even find that an implied partnership
existed. A joint venture is a type of general partnership. The great drawback
to a general partnership is that it does not offer limited liability -
each partner has unlimited liability for the debts of the partnership.
As you can see, the general partnership is a flexible form in which to
conduct business. In addition, the laws governing partnerships - usually
the uniform partnership act - are very well developed. You need not make
any public filing to establish the entity as is required to form a limited
liability company or corporation. A partnership is also not required to
comply with the extensive record-keeping and regulatory formalities as
other business forms. By its nature, a general partnership does not have
a centralized management structure as do corporations, and, as well, general
partnership necessarily dissolves upon the death or withdrawal of any
one member. Also, you will not be able to readily sell an interest in
a general partnership; again, by its nature all partners must consent
to the admission of a new partner.
State law provides for the formation of what is called a limited partnership.
A limited partnership does not pay income tax just as a general partnership
does not and often has a similar type of partnership agreement setting
out the arrangements between the partners. Formation requires the filing
of papers and paying of fees to the state just as a corporation and limited
liability company does. The limited partners can die or withdraw without
ending the entity, and they can sell their interest without terminating
the partnership. A limited partnership differs significantly from a general
partnership in that a limited partnership has centralized management -
the general partner runs the business, in fact the limited partners will
lose their limited liability if they participate in management. Only the
limited partners have limited liability. It is possible to make a corporation
or a limited liability company the general partner so that all members
have limited liability. Tax considerations are the most common reason
to conduct business in this form.
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