Types of Business Partnerships
A People’s Choice can save you hundreds of dollars by preparing your California partnership agreement and other business organizational documents instead of an expensive attorney!
A partnership is created when two or more people establish a business with the intent to share in the business profits and losses. In a partnership, each person contributes something to the business. The individual contribution can be a variety of things such as property, money, services, ideas or any combination. The right to manage the business, each individual’s share of profits and their individual personal liability may vary, depending on the type of partnership that is established. The four typical types of partnerships are a general partnership, limited partnership, limited liability partnership (LLP) or joint venture. Below are basic summaries of these main types of business partnerships.
- Sharing Profits: In the absence of a partnership agreement, profits are shared equally among the partners. A partnership agreement, however, will usually provide for the way gains and losses are to be shared.
- Unlimited Personal Liability for Losses: Each partner is, jointly and severally, personally liable for debts and taxes of the partnership. For example, if the partnership assets are insufficient to satisfy a creditor’s claims, the partners’ personal assets are subject to attachment and liquidation to pay the business debts.
- Liability for a co-partner’s debts: Each general partner is deemed the agent of the partnership. Therefore, if that partner was apparently carrying on partnership business, all general partners can be held liable for his dealings with third persons.
- Liability for a co-partner’s wrongdoing: Each partner may be held jointly and severally liable for a co-partner’s wrongdoing or tortuous act (e.g. the misapplication of another person’s money or property).
- Duration: Technically, a partnership terminates upon the death, disability, or withdrawal of any one partner. However, most partnership agreements provide for these types of events with the share of the departed partner being purchased by the remaining partners in the partnership.
- Management and Control: Lacking a partnership agreement, each general partner has an equal right to take part in the management and control of the business. A majority of the partners decides disagreements in the ordinary course of partnership business. Disagreements of extraordinary matters and amendments to the partnership agreement require the consent of all partners.
- Transferability: Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners. However, a partner may assign his share of the profits and losses and right to receive distributions (“transferable interest”). Further, a partner’s judgment creditor may get an order charging the partner’s “transferable interest” to satisfy a judgment.
- Duration: Death, disability, or withdrawal of a general partner dissolves the partnership unless the partnership agreement provides otherwise or all partners agree, in writing, to substitute a general partner. (Note: Death or incompetence of a Limited Partner has no effect on the partnership.)
- Formalities: The formalities of setting up and operating a limited partnership are very similar to that of starting a small, for-profit corporation. The California Limited Partnership Act, for example, requires the filing of a certificate with the Secretary of State, applies restrictions on the use and availability of partnership names, contains statutory requirements with respect to the manner of calling and holding meetings, and contains many corporation-like requirements.
A People’s Choice can save you hundreds of dollars by preparing your California partnership and other business organizational documents instead of an expensive attorney!