Partnership Basics – Questions and Answers

Why form a partnership?

Though there are more sole proprietorships, partnerships usually make a lot more money.

 What types of partnerships are there and how are they different?

  1. General Partnerships – these partnerships share management, control and profits; each an every partner is liable for the acts of the other, and each can bind the other (so choose your partners wisely); this form of partnership is known as the original partnership.
  2. Limited Partnerships –  These formations have a general partner who runs the show and makes the decisions and has the liability, and limited partners who put money in but don’t have a say in the running; the liability for the limited partners is limited to the money that they put into the partnership, but they can share in the profits; limited partnerships are a preferred vehicle for those who want to invest but don’t want to control the business.
  3. Limited Liability Partnerships – these entities are a mixture between the general partnership and the limited partnership.  Created mostly for doctors, these entities limit liability for the partners when torts are created and limits that liability to the person who committed the tort, but each partner can bind the rest of the partners in the contract

What can a partnership do?

A partnership is an entity and legally has a presence. Because of this legal presence partnerships can own property, they can be sued (through joint and several liability one may sue all of the partners), they can enter into contracts, and file taxes.

Why should a partnership file with the state?

Filing with the state puts third parties on notice that they aren’t dealing with the partner individually but are dealing, contracting, or agreeing with the partnership as a whole.

Can partnerships be formed by mistake?

Partnerships can be formed by mistake through agency law, because they are not required to have a written partnership agreement or file anything formally with the state.  When this happens the rules of the Revised Uniform Partnership Act govern their dealings.  But most of these rules can be negotiated or changed by agreement and the parties’ freedom of contract.  For instance a partnership can be created when two people purchase a piece of property together.

 Does a partnership have to be between two people?

No.  A partnership can can be with two real people, or it can be made up of multiple different entities.

 

 

 Photo By: NS Newsflash