Understanding Basic Differences: General and Limited Partnerships


When people set up a business, it is not unusual for business owners to engage in partnerships. This helps to spread the workload, debt, and bring in expertise in different areas to maximize the opportunity for success; however, setting up a business partnership can also be complicated.

There are important legal issues and tax implications that must be navigated. Two of the possible partnership arrangements are a general partnership and a limited partnership. Understanding the differences between the two is important in setting up the business for success.


A General Partnership is Relatively Equal

If a business sets up a general partnership, all of the business partners have the legal authority to exercise control over the business and execute important decisions. Every owner can make decisions regarding the business that carries legal authority. Furthermore, every partner is going to have equal authority over the business unless the partnership agreement says otherwise.

Because this is a general partnership, this ownership comes with great responsibility. The general partners are all responsible for any of the debts in the business, meaning that partners could lose more than simply the capital of their business should something bad happen to the business. In addition, every partner is equally and totally liable. Therefore, while every partner has equal liability regarding the debts of the business, a claimant could seek to take more from one of the partners if one of the other partners can’t cover their fair share. If a partner can’t cover their portion of the debt, someone else will have to pick up the slack.

A Limited Partnership has Limited and General Partners

A limited partnership has several notable differences. First, every limited partnership will require a detailed partnership agreement. Much of this information will need to be filed with a government agency in the state. In this agreement, a limited partner doesn’t have total responsibility of the business.

This is different from a general partner because a limited partner will only be able to lose his investment. His assets cannot be seized if the business goes under; however, this also means that a limited partner does not have as much control over the business. He invests in the business but does not run it. Because of this, a limited partner must have one or more general partners who can run the business on a daily basis. A limited partner can certainly give input regarding the direction of the business; however, his decisions do not carry legal weight.

These are only two of the ways that someone can arrange the ownership, responsibilities, and hierarchy of the business. Before entering into a business partnership with anyone, it is important to hire an experienced business law attorney to review agreements related to the creation and running of the business.  This kind of legal guidance will help to ensure that you choose the best legal structure for your business and that you fully understand the responsibilities and consequences of the structure of your choice. 

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