A legal partnership is a business structure in which two or more individuals or entities collaborate to operate a business and share in its profits and losses. Partnerships are defined by the legal relationships and agreements among the partners, outlining their roles, responsibilities, and contributions to the business. There are several types of legal partnerships, with the most common being general partnerships and limited partnerships. Here are the key characteristics of each:
General Partnership:
In a general partnership, all partners have equal management authority and are jointly responsible for the day-to-day operations and business decisions.
Profits and losses are typically shared equally among the partners, but this can be outlined differently in a partnership agreement.
Each partner in a general partnership has unlimited personal liability for the partnership's debts and legal obligations. This means that personal assets can be used to satisfy the business's debts.
General partnerships are relatively easy to form and require minimal formalities, but it is advisable to have a written partnership agreement to define the terms and conditions of the partnership.
Limited Partnership:
A limited partnership includes both general partners and limited partners. General partners are responsible for managing the business and have unlimited personal liability, similar to a general partnership.
Limited partners, on the other hand, contribute capital but have limited involvement in the business's day-to-day operations and decision-making. They enjoy limited liability, which means their assets are typically protected from business debts and obligations.
Limited partnerships require compliance with specific legal requirements, including filing with the state and adhering to partnership agreement terms.