10 September 2012 ~ 0 Comments

3 Most Common Types of Business Partnerships

 

When searching for a business partnership, it’s important to determine what type of partnership you want. There are advantages and disadvantages to each of these partnerships. Three common types of business partnerships are General Partnerships, an LLC Partnership, and an S corporation. For most of the entrepreneurs I interact with, an LLC is the way to go, but your specific needs may be better addressed by another type of partnership or business entity.

GENERAL PARTNERSHIP

A general partnership is a private business that is owned by at least two business partners. This is a very common way to do business and a general partnership is also unincorporated. The business usually has a contract

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called a partnership agreement in which all parties agree on how the business is to be run and who has the rights to make decisions about that company. Partners in the company have unlimited liabilities, such as debts, taxes, and so on. Do you want to be personally responsible for your partners’ debts?

  • Advantages
    • Very easy way to establish a partnership
    • Doesn’t have to be registered or incorporated with the state
    • Pass-through taxation (partners are taxed rather than the partnership)
  • Disadvantages
    • Partners are liable for each other’s debts and actions
      • TIP: Partners in general partnership can get “general partnership liability insurance” for protection from each other. This type of insurance is recommended for anyone getting involved with a general partnership due to the risks.

LIMITED LIABILITY COMPANY (LLC)

A limited liability company, or LLC, is another one of the common types of business partnerships. It’s probably the most common type of business entity setup by successful small businesses, and it’s what I’d recommend. It combines traits of a corporation with those of a sole proprietorship. In an LLC, business partners have the pass-through taxation feature that is usually found in a sole proprietorship or a general partnership, but the individual’s personal liability is limited (like a corporation).

  • Advantages
    • The members of an LLC have liability protection. In the event of losses or debts, they aren’t personally liable for the losses suffered by the company.
    • There’s no legal need for formal meetings or recorded minutes
    • Choose to be taxed as a corporation or choose pass-through taxation
  • Disadvantages
    • Company can’t “go public” since there are no shareholders or shares
    • More paperwork than a general partnership, but in my opinion it’s worth it

S CORPORATION

An S corporation is a corporation that chooses to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code (uh… what?). An S corporation is incorporated through the state. Stock is issued and the owners are then called shareholders. Owners have personal liability protection.

What types of partnerships have you been a part of in the past? What are some of the advantages and disadvantages that you’ve dealt with over the years? I’d love to hear what you have to say so please post a comment below!

Before starting any of these three types of business partnerships you should consult a lawyer or accountant. The information contained here is not intended to be professional or legal advice in regards

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to your business. I’m an entrepreneur, not a lawyer.

 

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