4 Examples Of Legal Business Partnerships
Business partnerships are a legal entity that binds multiple business partners for their business. They are both liable and responsible for the business. With this type of legal partnership agreement, both partners share in the profits and losses of the business.
Under the terms of the partnership contract, every person contributes something to the business, whether those are ideas, money, or property.
Here is a look at some common business partnerships.
A general partnership involves multiple owners managing a business. The partners share equal rights and responsibilities in regards to the management of the business. One partner can cause the entire group to become obligated to deal with a certain situation.
While this type of partnership can be tough, general partnerships do come with a tax advantage, as all profits are not taxed to the business, but instead are passed through to the partners, who add the gains to their personal tax returns at a lower rate.
A limited partnership gives each partner the ability to restrict their personal liability to the amount of their business investment. Be aware that not every partner is able to benefit from this rule, as at least one person must be willing to accept general partnership status.
Once they accept that status, they are at risk of assuming full responsibility for the business debts and any obligations concerning the business. The general partner has the right to make decisions on behalf of the business, while the limited partners do not have the right to participate in management decisions. However, both general and limited partners receive benefits from the business profits.
Limited Liability Partnership
A limited liability partnership retains the tax advantages of the general partnership style, while also offering some personal liability protection to all participants. Individual partners are not liable for the negative acts of the other partners, or the debts and obligations of the business.
Due to some changes to many of the aspects of the traditional partnership, authorities may hold a limited liability partnership to tax rules that would normally apply to non-partnerships. The Internal Revenue Service may still look at these businesses as partnerships, which will grant the partners a pass.
Partnerships that strive to use their limited liability partnership status may not need to change their initial partnership agreement. If they choose to change their status, they will have to file an application for registration as a limited liability partnership with their state agency.
Every state requires disclosure of the name of the partnership along with their primary place of business. Some states may require information on the number of partners, a description of the business, and a statement that acknowledges that the partnership has insurance and that its limited liability status could expire at some point.