So you want to set your business up as a corporation, but what kind of corporation? Your options include general partnership, limited partnership and limited liability partnership. Learning more about each and discussing your options with your other partner(s) ensures you structure your business properly and understand your obligations.
The most basic option, a general partnership equally divides the business management rights and responsibilities between all partners. What’s more is that any of the partners can sign the entire corporation into a legal obligation. You and your other partners will be fully responsible for all of your commercial obligations and debts. This might sound daunting, but it can actually be quite beneficial. For instance, your partnership profits are not taxed through the business, but rather through your personal tax returns at a reduced rate.
Through a limited partnership, your personal liability is reduced to only the amount of your investment, but not every partner will be able to take advantage of this. There has to be someone who acts as the general partner, which means that individual becomes personally responsible for all of the company’s obligations and debts. Something else to think about with the general partner is he or she is allowed to control the business, which differs from the limited partners, who don’t have a say in management decisions.
Limited Liability Partnership
You will enjoy some of the tax benefits of a general partnership as well as some personal liability protection by establishing an LLP. You won’t be held accountable for any of the illegal or irresponsible acts of your other partners. You also don’t have to worry about business debts or obligations. Bear in mind that there are some states that subject LLPs to non-partnership tax laws. If you have a general or limited partnership and wish to change your status to that of a limited liability partnership, you can do so by filing an application. Before you do this, know that you’ll be required to list each partner’s name and main place of business. There are also states where you’re required to reveal how many partners you have, give a general description of your company and provide confirmation that you will remain insured. Be sure you check your state’s most recent requirements and that you’re always in compliance with them.
Seek Professional and Legal Help
Knowing the different types of partnerships and choosing one are two different things. To help you narrow down your options, talk with business owners who have each type of partnership. Ask about the unique advantages and disadvantages of each, and which they recommend you choose. It might also help if you think about the type of business you’d like to have several years in the future as opposed to the one you have now. Businesses change over the years, and while a general partnership might work for the initial stages of your business, you could outgrow it. Being prepared for this possibility is sure to make the transition smoother for everyone involved. An attorney could also help you make a decision. As you can see from the information above, there are an abundance of legal issues to think about with a partnership. Knowing the intricacies of the laws governing each type of partnership can also be instrumental in helping you to reach a final decision. While you might have to pay for the services and expertise of a business attorney, it’s a small price to pay when it means the difference between a business success and a business failure. Just as there are different types of businesses, there are also different types of business partnerships. Give yourself plenty of time to make a decision, and consider what’s best for your company.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.