There are two ways to go about forming a partnership. The first type of partnership agreement is a general partnership. The second type of partnership agreement is a limited partnership.
Tell me about general partnership agreements.
A general partnership is a form of doing business where two (2) or more people establish an association to operate as co-owners of an enterprise. In forming a partnership of the general type, there is no requirement to file documents at the state level. General partnerships are filed in the county where business is conducted. The advantage to this type of partnership is that the state fees are avoided. The disadvantages of a general partnership is that there is not limited liability, making a partner subject to personal liability. In addition a general partnership can be destroyed or penetrated when one partner is sued.
Tell me about limited partnership agreements.
In forming a partnership of the limited type, organizational documents must be filed at the state level. There are two types of partners within a limited partnership, general partners and limited partners. These partners are listed in the private partnership agreement. General partners control the limited partnership and have total liability. Limited partners have no management authority and do not assume liability. The most that a limited partner can lose is the money they invest in the limited partnership. The advantage of a limited partnership agreement is that it has flow-through taxation, unlike subchapter C corporations, which are taxed at two (2) levels (note LLCs can be taxed as a partnership and also avoid this double taxation). In addition, there is limited liability for the limited partners. A limited partnership has provisions in the partnership agreement to keep it from being destroyed or penetrated when a partner is sued. The disadvantage of a limited partnership is that those who manage the partnership, the general partners, have total liability. This is unlike an LLC which has limited liability for the business owners. Please read more on LLC's in the Frequently Asked Questions.