Differences between general and limited partnerships

by Darren M. Malek on Oct. 04, 2019


Summary: Some people who are ready to go into business want to bring along a partner for the ride.

Some people who are ready to go into business want to bring along a partner for the ride. But not all potential partners like the idea of exposing themselves to the liability of the business world, or they may not feel comfortable managing a company. This is why some people choose to form a limited partnership in the Kalamazoo area rather than creating a general partnership.

Typically, a business partnership is either a limited partnership or a general partnership. Chron.com explains the differences between these two business formations. The main distinction is how much each partner contributes to the business. A partner that has no problem with greater risk will contribute more to the business, while a partner who is concerned about liability will be more passive.

In a general partnership, you and your partner take on managerial duties and share in the liability of the business. Some partners take an equal share, however, there is room to specifically define how much management control and exposure to liability each partner will possess. These provisions should be spelled out in a written document to minimize disputes down the road.

Limited partnerships are set up differently. You will have a partner who possesses all or nearly full managerial authority over the business and is more directly exposed to liability from success or failure of the company, while the other partner or partners are passive participants. Unlike the managing partner, the limited partner is only liable for money he or she invested in the business while not exercising managerial decisions.

General partnerships are more common, partially because they are easier to set up. FindLaw explains that limited partnerships are more complex in nature. If you opt for a limited partnership, you would almost certainly need paperwork to formally organize and recognize your business structure. Limited partners should also file a limited partnership certificate that names the general partners to avoid being litigated by creditors.

Even with the complications involved in setting up a partnership, the flexibility involved in partnership structures allows people of varying experiences and resources to participate. Consultation with a business law attorney can also help iron out issues relating to your business goals.

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