Partnership Law Definition
There are several types of partnerships- general partnerships, limited partnerships, and limited liability partnerships. A general partnership is a form of business entity in which two or more co-owners engage in business for profit. There is no limit on the number or type of partners (i.e., individuals, other partnerships or corporations) to form a partnership. Generally, the business assets and business debts are jointly owned by the partners. The individuals involved are personally responsible for all debts and legal obligations of the business, including those incurred by the other partners when doing business on behalf of the company.
A limited liablility partnership (LLP) is a general partnership that elects to be treated as an LLP by registering with the Secretary of State. Many attorneys and accountants choose the LLP structure since it shields the partners from vicarious liability, can operate more informally and flexibly than a corporation, and is accorded full partnership tax treatment. In a general partnership, individual partners are liable for the partnership's debts and obligations whereas the partners in a limited liability partnership are statutorily provided full-shield protection from partnership liabilities, debts and obligations. It allows the members of the LLP to take an active role in the business of the partnership, without exposing them to personal liability for others' acts except to the extent of their investment in the LLP. Many law and accounting firms now operate as LLPs. In some states, with certain exceptions, the LLP is only available to attorneys and accountants.
Limited partnerships are very different from general partnerships, and are usually set up by companies that invest money in other businesses or real estate.
Limited partnerships have at least one general partner who controls the company's day-to-day operations, exercise managerial power, contribute capital, share in the profits and are held personally liable for all company debts and legal obligations. They also have passive partners called limited partners.
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