{"id":4894,"date":"2016-04-04T10:47:49","date_gmt":"2016-04-04T15:47:49","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/incorporation-and-legal-structures\/types-of-partnerships.html"},"modified":"2025-10-19T09:58:00","modified_gmt":"2025-10-19T14:58:00","slug":"types-of-partnerships","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/incorporation-and-legal-structures\/types-of-partnerships.html","title":{"rendered":"Types of Partnerships"},"content":{"rendered":"\n
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Types of Partnerships<\/h1>\n\n
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\n By Jade Yeban, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last reviewed\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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A partnership is a legal business structure<\/span> where two or more individuals create a business and share in the partnership\u2019s profits and losses. The type of partnership<\/span> you choose, whether a general partnership<\/span>, limited partnership, or limited liability partnership<\/span>, or limited liability limited partnership<\/span>, impacts your tax treatment, personal liability, and filing requirements.<\/p>\n\n <\/div>\n\n\n\n

When you\u2019re\u00a0thinking\u00a0about\u00a0starting a small business<\/span>, choosing the right business structure<\/span> is crucial. This decision can impact your income tax<\/span>, the paperwork you need to file, and your level of risk. A\u00a0partnership<\/a>\u00a0arises whenever two or more people co-own a business and share in the profits and losses of the business. Other\u00a0business legal structures<\/a>\u00a0include sole proprietorships<\/span>,\u00a0limited liability companies<\/span> (LLCs),\u00a0corporations,\u00a0and nonprofit corporations.<\/p>\n

In a partnership structure<\/span>, each person contributes something to the business. This can be ideas, money, property, or some combination of these. Management rights, profit share, and personal liability will vary. These factors depend on which type of partnership<\/span> the business takes. These forms include general partnership<\/span>, limited partnership, or limited liability partnership<\/span> (LLP<\/span>). Below are basic summaries of the main types of business partnerships.<\/p>\n

Need help with business formation? Our trusted partner LegalZoom makes it easy\u2014packages start at $0 + state filing fees.<\/a><\/span><\/b><\/p>\n

General Partnerships<\/span><\/h2>\n

A general partnership<\/span> involves two or more owners carrying out a business purpose. General partners<\/span> share equal rights in connection with the management of the business. They also share equal responsibility. Any individual partner can bind the entire group to a legal obligation.<\/p>\n

Each individual partner\u00a0assumes full responsibility<\/a>\u00a0for all the partnership debts<\/span> and obligations. This is sometimes called\u00a0unlimited liability.\u00a0This means a business owner\u2019s personal assets<\/span> can be used to settle business debts. Such personal liability can be daunting, but it comes with a tax advantage.<\/p>\n

Partnership profits are not\u00a0taxed to the business<\/a>\u00a0but pass through to the partners\u2019 individual tax returns<\/span>. Each partner files a personal income <\/span>tax<\/span> return<\/span>, and they don\u2019t face double taxation.<\/p>\n

This type of <\/span>business structure<\/span> is easy to start. You don\u2019t need to file an article of organization or incorporation<\/span> with the secretary of state. To start, decide on a business name, get a business license<\/a> (if needed), and open a bank account for your business.<\/p>\n

Limited Partnerships<\/h2>\n

A limited partnership is a partnership with two different types of partners, a general partner<\/span> and a limited partner<\/span>. General partners<\/span> manage the day-to-day operations<\/span> and face unlimited personal liability<\/span>. Limited partners<\/span> invest money but have limited decision-making<\/span> power.<\/p>\n

In a limited partnership business<\/span>, a limited partner<\/span>\u2019s liability is limited to the amount of their initial business investment. The general partner<\/span> retains the right to control the business. The limited partner<\/span>(s) are passive and do not take part in management decisions. Both\u00a0general and limited partners<\/span><\/a>\u00a0enjoy the business profits. The profits from business operations<\/span> pass through to the individual partners. There is no double taxation. This form of business<\/span> is common for professional services and startups.<\/p>\n

To establish a limited partnership, you file a certificate of limited partnership with the secretary of state\u2019s office and follow any annual filing requirements. Under state law, this registration treats your partnership as a separate legal entity<\/span>.<\/p>\n

Limited Liability Partnerships<\/span> (LLP<\/span>)<\/h2>\n

Limited liability partnerships<\/span> (LLPs<\/span>) are like limited partnerships, but\u00a0depending on your state law, they offer some liability protection<\/span> to all partners. LLPs<\/span> keep the tax advantages of the general partnership<\/span> form. In an LLP<\/span>, partners in \u2018full shield\u2019 states have protection against business debts and wrongful actions of the other partners; however, they\u2019re still responsible for their actions.\u00a0<\/p>\n

In states that offer only a \u201climited shield,\u201d a partner is protected from the negligent actions of the other partners but still is liable for partnership debts<\/span> and obligations.<\/p>\n

The LLP<\/span> form changes some of the fundamental aspects of the traditional partnership. As a result, some state tax authorities subject LLPs<\/span> to non-partnership tax rules. The IRS<\/span> views these businesses as partnerships<\/a>. They allow partners to use the pass-through technique for taxation.<\/p>\n

Partners in LLPs<\/span> report their net partnership income<\/span> on personal <\/span>tax returns<\/span>. This helps avoid the issue of double taxation.<\/p>\n

Existing partnerships that wish to change to LLP<\/span> status do not need to change their existing partnership agreement<\/span>, but they might choose to do so. To change status, a partnership simply files an application for registration as an LLP<\/span> with the appropriate state agency.\u00a0<\/p>\n

All states need disclosure of the partnership\u2019s name and principal place of business. Some\u00a0states also require<\/a>, among other things, identification of the number of partners. They might want a brief description of the business and a statement that the partnership will maintain insurance. They might also ask for written acknowledgment that the limited liability status may expire.<\/p>\n

To form an LLP<\/span>, entrepreneurs need to file specific documents with the secretary of state to register their business entity<\/span>. While it offers more protection than a general partnership<\/span>, it\u2019s not a complete shield like a limited liability company<\/span><\/a> (LLC). To learn more about the difference between an LLC and an LLP<\/span>, visit\u00a0FindLaw\u2019s LLCs vs. LLPs<\/span> page<\/a>.<\/p>\n

Limited Liability Limited Partnerships<\/span><\/h2>\n

Some states allow professionals, such as lawyers or doctors, to form a limited liability limited partnership<\/span> (LLLP<\/span>). An LLLP<\/span> is similar to a LP in that it has general partners<\/span> and limited partners<\/span>, but the general partners<\/span> have limited liability for business debts. In an LLLP<\/span>, the partners are also protected from malpractice of their partners, but are still held accountable for their own negligent actions.<\/p>\n\n\n\n\n\n\n\n
Partnership Type<\/strong><\/td>\nLiability<\/strong><\/td>\nManagement<\/strong><\/td>\nFormation<\/strong><\/td>\n<\/tr>\n
General Partnership (GP)<\/td>\n\n

Unlimited personal liability<\/span> for all partners<\/p>\n<\/td>\n

Equal share in management<\/td>\nAutomatic when two of more people start doing business together<\/td>\n<\/tr>\n
Limited Partnership (LP)<\/td>\nUnlimited personal liability<\/span> for general partner<\/span>; liability limited to investment for limited partners<\/span><\/td>\nManaged by general partners<\/span>; limited partners<\/span> are passive investors<\/td>\nFile certificate of limited partnership with secretary of state<\/td>\n<\/tr>\n
Limited Liability Partnership (LLP)<\/td>\nPartners have limited liability from other partner\u2019s actions and debts (depending on state)<\/td>\nAll partners can manage<\/td>\nRegister with the state<\/td>\n<\/tr>\n
Limited Liability Limited Partnership (LLLP)<\/td>\nBoth general partners<\/span> and limited partners<\/span> have limited liability for debts<\/td>\nManaged by general partners<\/span>; limited partners<\/span> are passive investors<\/td>\nRecognized in some states, created by filing certificate of limited liability limited partnership<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Get Legal Help Before Setting up Your Partnership<\/h2>\n

Starting a business is exciting, but it\u2019s essential to get it right from the beginning. From choosing your legal entity to understanding how to protect yourself, there\u2019s a lot to consider. With so many different types of business entities<\/span> and types of corporations<\/a>, always consult with professionals before making decisions.<\/p>\n

If you\u2019re interested in learning more about the different types of partnerships<\/span>, talk to a skilled attorney. An attorney can help you navigate the world of business entities<\/span>. They can help you with business formation for your new business. This can help protect your business from issues in the future.<\/p>\n

Speak to a skilled\u00a0business attorney<\/a>\u00a0near you.<\/p>\n\n\n

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