Entrepreneurs who want to start a joint venture must have detailed information about what are the 4 types of partnerships. Different partnership types have different management responsibilities, and the consequences and structures of liability also vary.
L&Y Tax Advisor explains what are the 4 types of partnerships to assist you in choosing the best partnership form for your company.
General Partnership (GP)
The simplest type of commercial partnership is a general partnership. Under this arrangement, two or more people are equally in charge of running the company and are held accountable for all its debts.
Establishing a GP is easy and affordable. However, it does not provide personal liability protection. Each partner’s assets might be at stake if the company has debts or legal problems.
Limited Partnership (LP)
A limited partnership consists of one or more limited partners and at least one general partner. While limited partners provide funds and are solely liable for their investments, the general partner manages day-to-day operations and has unlimited responsibility.
Limited partners usually don’t have a say in management choices. However, limited partnerships (LPs) are beneficial for investors who want to finance a firm without being involved in its operations.
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Limited Liability Partnership (LLP)
In addition to providing liability protection against the conduct of other partners, an LLP enables all partners to participate in management. Many professional groups frequently use this structure, such as:
- Attorneys
- Accountants
- Architects
It is crucial to remember that state laws governing limited liability partnerships (LLPs) differ, with some jurisdictions prohibiting LLP formation for specific occupations.
Limited Liability Limited Partnership (LLLP)
The LLLP is a relatively novel and uncommon form combining aspects of LLPs and LPs. Restricted liability protection is available to both general and limited partners in an LLLP.
Businesses looking to safeguard the personal assets of all partners can benefit from this arrangement. Since not all states recognize LLLPs, confirming state-specific laws is crucial before forming one.
The Bottom Line
Choosing a partnership structure that fits your management style, risk tolerance, and company objectives is critical. Although they are simple, general partnerships carry full personal liability. Limited partnerships offer specified liabilities and a combination of active management and passive investing. LLLPs provide complete responsibility protections for all partners, whereas LLPs serve professionals seeking joint management and liability protection. Speaking with financial and legal counsel will help you understand your company’s requirements more.
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