A general partnership consists of two or more partners. There are no statutory formalities, however it is prudent to have a partnership agreement that sets forth the partners’ rights and obligtations. A general partnership is thus easy to establish and can be more informal than other business entities.
There is a huge downside to a general partneship; each partner may be liable for all of the partnership’s debts and liabilities. This personal liability is the rationale behind a detailed partnership agreement.
A limited partnership, on the other hand, consists of one or more general partners and one or more limited partners. The general partners typically make all of the business decisions, while the limited partners are typically passive investors.
Unlike a general partnership, a limited partnership requires an organizational document to be filed with the Secretary of State. In addition, a limited partnership agreement should be drafted setting forth the rights and obligations of the general partner and the limited partners. Typically only the general partners bear the liability for the partnership’s debts and liabilities, while the limited partners have limited exposure.
Limited partnerships have their place, and can be a good structure for certain enterprises, such as real estate holdings, venture capital funds and so on, but limited liability companies and corporations are typically better for operating a business.
Determining the correct structure for your enterprise is a critical first step and should not be decided lightly.
