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General & Limited Partnerships

What is a Partnership?

Unlike a company, partnerships are not legal entities in their own right. So, for example, partnerships may not register assets. All partnership assets are equally owned by all partners unless entrusted to the care of trustees.

Principles of General Partnerships, unless determined otherwise in the partnership agreement:

  • All partners are entitled to equal ownership of assets and partnership profit, and also are equally liable to cover losses;
  • The partnership must reimburse every partner for expenses or payments made by them on behalf of the partnership;
  • Every partner that invested beyond the required minimum of capital in the partnership may consider the difference as a loan;
  • In cases where a partner chooses to delegate responsibilities to another, this decision in no way makes that person a partner but he/she may receive a measure of partnership profits.

One of the key advantages of partnerships is that the personal property of its partners is separate from partnership assets and so, for example, a court verdict against one partner cannot be realized by taking control of another partner’s assets.

In terms of taxation, most places do not consider partnerships taxable. Each partner must pay personal taxes.

Limited Partnership

Limited partnerships must include at least one General Partner whose liability is unlimited, and at least one partner with limited liability.

On entering the partnership, the limited liability partner must transfer an agreed sum to the partnership, and henceforth is liable for that sum. The limited partner may not demand that money back until the partnership is dissolved. Meaning, should be the partnership be unable to cover its debts, only the General (unlimited) Partner will be liable for payment.

In contrast to most circumstances of General Partnerships, Limited Partnerships are required to register in most states. Unlike unlimited partners, most limited partners do not have management rights unless expressly mandated in local law, and they are restricted in several other ways as well.

In certain conditions there are several advantages to establishing a Limited Partnership, including tax benefits.

Partnerships roles:

  • General Partner – As stated, an unlimited partner liable for the entire sum. General Partners may be individuals and even, in some cases, a company;
  • Limited Partner – May be an individual, and even, in some cases, a company;