A majority of all partnerships can be classified as one of three distinct structural types. The first, a general partnership (GP) is the most common, and considered one of the most informal business structures. The other two types, limited partnerships (LPs) and limited liability partnerships (LLPs), are slightly less common but may be perfect choices for certain companies.
For many first time business owners, even those with some business experience, choosing the ideal type of partnership for their new organization can be a difficult task. Read ahead for the most important aspects of each of the most common partnership types, basic information on how each structure is taxed, and the personal liability protections that the structure offers.
Three reasons to form a GP
You want to:
Save money on administrative tasks Outside of the necessary local or state business licenses and permits, general partnerships are free from any other government-imposed regulations. This means less profits go to administrative overhead. Other more formal business structures must pay certain fees and taxes, which can begin to add up to substantial expenses over time.
Spend less time on formalities Most businesses that are incorporated are forced by law to hold certain annual ownership meetings, keep accounting separate for their personal and businesses needs, and formally keep document of some or all of their day-to-day operations. General partnerships are free from nearly all of these requirements, which save their owners a great deal of time and/or labor.
Form your business simply There is no formal filing process required to start a general partnership. As soon as you begin to conduct business, your partnership is considered “formed”.
Three reasons to form an LP
You’d like to:
Include “silent partners” Unlike other more formal business structures, LPs can have two distinct types of owners, general partners and limited partners (sometimes referred to as “silent partners”). Only general partners are required to be a part of the management of the business. This makes limited partnerships ideal for individuals simply looking to make a financial investment as a silent partner.
Protect investors from liability Only general partners can be legally or financially accountable for any of a limited partnership’s actions. This in effect creates a limited liability situation for any limited partners (such as investors), making LPs attractive to investing “silent partners”.
Take on a time-limited project Because LPs allow for “silent partners” involved purely for investment purposes, an LP is likely the ideal structure when forming a business that revolves around one short-lived project (e.g. film production, estate-planning, or event management).
Two reasons to form an LLP
You need to:
Create a partnership of professionals Legally, most types of businesses that offer professional services are forced to form as LLPs (or a select few other business types). Some common examples include law practices, medical providers, accounting firms, and architectural companies.
Eliminate your personal liability for your partner’s missteps Due to the sensitive nature and implications of the services these professionals offer, liability is an important factor that is addressed within the structure of an LLP. While each partner of an LLP will be required to carry their own form of professional malpractice insurance, they cannot be held financially or legally accountable for the mistakes or negligence of the other partners.
Partnership taxation
All three types of partnerships that we have discussed are taxed identically. No partnership type is required to pay taxes at the business level. Instead, each owner is required to file a separate Form 1065 and schedule K with the IRS, which helps the government determine the personal federal income tax liability of each partner.
Liability protection for partnerships
While personal liability is an important issue that needs to be addressed by any business owner, not every type of partnership provides limited liability. GPs are not granted any form of limited liability protection at all—the owner’s personal assets can be collected in the event of a the business becoming insolvent. This makes forming a GP a relatively high risk to owners, when compared to other business types. LPs and LLPs do offer limited liability, but with a strict set of restrictions and requirements, which we have previously noted.
Swyft can help!
There are a lot of variables that will influence your decision on which partnership structure is ideal for your business. The experienced business professionals at Swyft can walk you through your options.Contact us today!
Looking for answers? You came to the right place. To learn more about our company mission and culture, click the link below.
You can form a corporation or LLC with our help for as little as $0, plus state filing fees for incorporation. Filing fees vary depending on the state you incorporate in. For more information on specific states, check out our state guides on the Swyft Resource Center. You can also email us with specific questions or contact us at 877-777-0450.
Swyft Filings accepts payment through Visa, MasterCard, American Express, PayPal, checks, and money orders. You can send any questions about payment to our email address or contact us at 877-777-0450.
It depends on what you ordered. If all you did was file your corporation or LLC, the price you paid when ordering is all you pay. You will have no further fees after that.
However, if you signed up for the Swyft Filings Registered Agent Service, you will be charged its initial fee three days after you place your order. From then on, you will be charged according to the terms of your subscription until you change your registered agent with the state or dissolve your company. If you change your agent or dissolve your company on your own, let us know so we can discontinue billing.
Other potential subscription-based options include SnapMailbox, 360 Legal Forms, and ComplianceGuard. If you opt for SnapMailbox or 360 Legal Forms, you will be charged a monthly fee after their respective 30-day free trials end. ComplianceGuard has an annual fee after a 14-day free trial. All three of these services are completely optional.
Our team processes all Standard orders on a first come, first served basis. If you opt for Express or Same-Day Processing, we prioritize your order and send it to the front of the line. However, no matter how fast we get it out the door, you’ll still have to wait for your state to address your filing.
Each and every one of our customers is assigned a personal Business Specialist. You have their direct phone number and email. Have questions? Just call your personal Business Specialist. No need to wait in a pool of phone calls.
Trusted by over 250,000 businesses since 2015. Start your business with confidence. Affordable. Fast. Simple.