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TYPES OF 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!
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Our online learning center provides quick access to valuable information contained in our web
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General Partnership: A General Partnership is a form of business entity in which two or more co-owners engage in
business for profit. For the most part, the partners own the business assets together and are personally liable for business debts.
- Sharing Profits:
In the absence of a partnership agreement, profits are shared equally amongst the partners. A
partnership agreement, however, will usually provide for the manner in which profits 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 he 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:
In the absence of a partnership agreement, each general partner has an equal right
to participate in the management and control of the business. Disagreements in the ordinary course of partnership
business are decided by a majority of the partners. 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 obtain an order
charging the partner’s "transferable interest" to satisfy a judgment.
Limited Partnership: In a Limited Partnership, one or more “general” partners manage the business while "limited"
partners contribute capital and share in the profits, but take no part in running the business. General partners remain
personally liable for partnership debts while limited partners incur no liability with respect to partnership obligations beyond
their capital contributions. The purpose of this form of business is to encourage investors to invest without risking more than the capital they have contributed.
- 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.
Limited Liability Partnership (LLP):
A Limited Liability Partnership is essentially a General Partnership but each partner
is not liable for certain acts of other partners. This formation is a General Partnership that elects to be treated as an LLP by
registering with the Secretary of State. Many attorneys and accountants find the LLP a very attractive alternative since it
shields the partners from vicarious liability, can operate more informally and flexibly than a corporation, and is accorded full
partnership tax treatment. (Note: In California, with certain exceptions, the LLP is only available to attorneys and accountants.)
Joint Venture: A Joint Venture is a General Partnership typically formed to undertake a particular business transaction or
project rather than one intended to continue indefinitely. Most often, joint ventures are used in real estate matters where 2
or more persons undertake to develop a specific piece of real property.
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!
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