There are two types of partnerships: general partnerships and limited partnerships. A general partnership is started when two or more persons agree to form a business and jointly own the assets and share in the profits and losses. There is no limit to the number of partners, and the partners can be individuals or legal entities, including other partnerships or corporations.
Setting Up
A general partnership can be formed by a verbal agreement, but normally there is a written agreement, signed by all the partners, that may be formalized in the partnership by-laws. The agreement should address the following major issues:
Each partner’s contribution to the partnership, in terms of money, property, and time
How decisions will be made
How profits and losses will be distributed among the partners
What will happen to a partner’s share if the partner dies, becomes disabled, or wishes to withdraw from the partnership
The duration of the partnership
A limited partnership has one or more general partners, who are generally liable for the business, and one or more limited partners, who have limited liability. Certain statutory requirements must be met in order to form a limited partnership. If these requirements are not met and the partnership is not legally set up as a limited partnership, it will be treated as a general partnership.
It may be necessary to consult with an attorney to properly set up a limited partnership that meets the statutory requirements of the state in which the partnership is established. It may also be advisable to have an attorney help draft the partnership agreement and by-laws in the case of a general partnership.
A partnership can take the name of one or more of the partners, or can take another name. As with a sole proprietorship, it may be necessary to file a fictitious name certificate if another name is used. Any state requirements regarding the name for a limited partnership should also be taken into consideration. It may be necessary to include an indication, such as LLP (Limited Liability Partnership), as part of the name.