Legal Intelligence
The Pro’s and Con’s of Partnerships
By Blanca Greenstein, Esq., & Nadia Hoosien, Esq. with Greenstein & Associates
Owning your own business can be one of the most rewarding and challenging adventures of your life. While you may know the “ins” and “outs” of your business, it is important that you understand and consider which business entity you would like your business or company to be formed as. This article will discuss the general formations of each entity, as well as the advantages and disadvantages.
A General Partnership (GP)
A General Partnership (GP) is the most basic partnership of them all. A GP can consist of two or more individuals who carry on as co-owners of a business for profit. This is true, whether or not the individuals actually intend to form a partnership or not. One of the advantages to this partnership is that no “writing requirement” is necessary in order to form a GP, and no capital investment or capital contribution is required. One of the disadvantages of a GP is liability. In a GP each partner or co-owner may be held liable to another third party who relied on either one of the co-owners in the course of conducting business. The co-owners are therefore jointly and severally liable under a GP.
A Limited Liability Partnership (LLP)
In order to form a Limited Liability Partnership (LLP), a statement or qualification with the department of state must be filed. The name of the LLP must also end with “registered limited liability partnership”, or “limited liability partnership”, or simply “LLP; L.L.P, or RLLP”. Other than differing formation requirements, a LLP is almost identical to that of a GP, except for in one aspect—liability. A LLP therefore can offer a co-owner greater protection as the LLP offers a broad shield from liability. A partner in a LLP is not personally liable for any LLP obligations, except that partner’s own torts, and those torts of someone under the direct supervision of the partner.
A Limited Partnership (LP)
A Limited Partnership (LP) can be described as a general partnership, with one or more partners, and one or more partners. The general partners will be subject to general liability, whereas the limited partners will have limited liability. A limited partner for example will not be held personally liable for debts and obligations of the LP, even if that limited partner participates in the control of the LP. Some of the formation requirements consist of a written agreement which should include the value of each partner’s contribution, when such contributions will be made, and the steps or events that will take place during dissolution of the LP. A Certificate of LP must be filed with the department of state, and the name of the LP must contain either “limited partnership”, or “ltd; LP, or L.P”. It is very important to note that the failure to file a Certificate of LP with the department of state, will expose ALL partners to be jointly and severally liable.
A Limited Liability Company (LLC)
A Limited Liability Company (LLC) requires that Articles of Organization be filed with the department of state. The name of the LLC must include the words “limited company; limited liability company”, or simply “LC or LLC”. The LLC is managed by members or managers, who manage in proportion to the current profit shares in the Articles of Organization or operation agreement. Another requirement to maintain the status of a LLC, is that an annual report must be filed and maintained. One of the greatest advantages of filing a LLC is that members get limited liability, except for their own torts. The LLC is liable for torts committed within the scope of its business and contracts that are executed by an agent acting with authority under the LLC. Another advantage of forming a LLC, is that a LLC can be treated like a partnership (meaning that the income from the LLC is passed through directly to the owners), or the LLC has the option to elect to be taxed like a corporation (which means that the income is subject to “double taxation”).
Choosing and understanding the right entity for your business can be critically important to your longevity as a successful business. Make sure you read all the additional filing requirements and other formation necessities before you plan the formation of your business. Please contact the Law Offices of Greenstein and Associates if you have any further questions or would like to discuss your business or choice of partnership in greater detail.
Disclaimer: This column is not intended to provide legal information or advice. All data and information provided on this column is for informational purposes only as well as to give general information and a general understanding of the law, and not to provide specific legal advice. By reading this column you understand that there is no attorney client relationship between you and the publisher. This column should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.