Small Business Partnership

. . . means partners share profits and responsibilities

people-bunchA partnership is a business in which partners (owners) share the profits or losses of the business. Partnerships are often better than corporations for taxation, because the partnership does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.

In civil law systems, a partnership is a nominate contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise; contribute to it financially or by combining property, knowledge or activities; and share in its profit. Partners may have a partnership agreement, or declaration of partnership and in some jurisdictions such agreements may be registered and available for public inspection. In many countries, a partnership is also considered to be a legal entity, although different legal systems reach different conclusions on this point.

Under common law legal systems, the basic form of partnership is a general partnership, in which all partners manage the business and are personally liable for its debts. Two other forms which have developed in most countries are the limited partnership (LP), in which certain limited partners relinquish their ability to manage the business in exchange for limited liability for the partnership’s debts, and the limited liability partnership (LLP), in which all partners have some degree of limited liability.

There are two types of partners. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership.

A silent partner is one who still shares in the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known.

The federal government of the United States does not have specific statutory law governing the establishment of partnerships. Instead, the several composite states of the country each contain their own statutory and common law governance of partnerships. These states largely follow general common law principles of partnerships whether a general partnership, a limited partnership or a limited liability partnership. In the absence of applicable federal law, the National Conference of Commissioners on Uniform State Laws has issued non-binding models laws (called uniform act) in which to encourage the adoption of uniformity of partnership law into the states by their respective legislatures. This includes the Uniform Partnership Act and the Uniform Limited Partnership Act. Although the federal government does not have specific statutory law for establishing partnerships, it has an extensive and hyperdetailed statutory scheme for the taxation of partnerships in the Internal Revenue Code. The IRC is Title 26 of the United States Code wherein Subchapter K of Chapter 1 creates tax consequences of such great scale and scope that it effectively serves as a federal statutory scheme for governing partnerships.

General Partnerships

In the commercial and legal parlance of most countries, a general partnership or simply a partnership, refers to an association of persons or an unincorporated company with the following major features:

  • Created by agreement, proof of existence and estoppel.
  • Formed by two or more persons
  • The owners are all personally liable for any legal actions and debts the company may face

In a general partnership, partners share equally in both responsibility and liability.

Limited Partnership (LP)

A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners (GPs), there are one or more limited partners (LPs). It is a partnership in which only one partner is required to be a general partner.[1]

The GPs are, in all major respects, in the same legal position as partners in a conventional firm, i.e. they have management control, share the right to use partnership property, share the profits of the firm in predefined proportions, and have joint and several liability for the debts of the partnership.

As in a general partnership, the GPs have actual authority as agents of the firm to bind all the other partners in contracts with third parties that are in the ordinary course of the partnership’s business. As with a general partnership, “An act of a general partner which is not apparently for carrying on in the ordinary course the limited partnership’s activities or activities of the kind carried on by the limited partnership binds the limited partnership only if the act was actually authorized by all the other partners.” (United States Uniform Limited Partnership Act ยง 402(b).)

Like shareholders in a corporation, LPs have limited liability, meaning they are only liable on debts incurred by the firm to the extent of their registered investment and have no management authority. The GPs pay the LPs a return on their investment (similar to a dividend), the nature and extent of which is usually defined in the partnership agreement.

Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liability. It therefore exhibits elements of partnerships and corporations.[1] In an LLP one partner is not responsible or liable for another partner’s misconduct or negligence. This is an important difference from that of a limited partnership. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation.[2] In some countries, an LLP must also have at least one “general partner” with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. As opposed to that, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as “corporate” individuals the legal responsibility to manage the corporation in the corporation’s best interest. An LLP also contains a different level of tax liability than a corporation.

Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries the LLP is more suited for businesses where all investors wish to take an active role in management.

There is considerable confusion between LLPs as constituted in the U.S. and that introduced in the UK in 2001 and adopted elsewhere – see below – since the UK LLP is, despite the name, specifically legislated as a Corporate body rather than a Partnership.

Once you have your partnership, consider searching for existing manufacturing businesses for sale.

-Information from

Books from Amazon:

There are many good books on starting partnerships. We have linked to a few here for you at Amazon. We are Amazon Associates and funds derived from the sale of books directly go towards keeping this Start Your Business blog going and providing much needed information and resources to those seeking it.

The Partnership Charter: How To Start Out Right With Your New Business Partnership (or Fix The One You’re In) by David Gage (Paperback – Jun 29, 2004)

Form a Partnership: The Complete Legal Guide by Ralph Warner Attorney and Denis Clifford Attorney (Paperback – Jun 25, 2008)

Strategic Partnerships: An Entrepreneur’s Guide to Joint Ventures and Alliances by Robert Wallace (Hardcover – Sep 1, 2004)

Agency, Partnerships, And LLC’s (Examples & Explanations) (Examples & Explanations) by Daniel S. Kleinberger (Paperback – Sep 3, 2008)

Federal Income Taxation of Partners and Partnerships in a Nutshell (Nutshell Series) by Karen C. Burke (Paperback – Jul 30, 2005)

Black Letter Outline on Corporate and Partnership Taxation by Stephen Schwarz and Daniel J. Lathrope (Paperback – Aug 6, 2008)

Partnership Income Taxation (Concepts and Insights) by Alan Gunn and James R. Repetti (Paperback – Mar 1, 2005)

Public-Private Partnerships: Principles of Policy and Finance by E. R. Yescombe (Hardcover – May 1, 2007)

LLC OR CORPORATION? How to Choose the Right Form for Your Business by Anthony Mancuso Attorney (Paperback – Dec 8, 2008)

Designed by SketchPad  |  Google+