Oftentimes, running a business is not easy to do alone. A helping hand might feel necessary when so much is at stake.
Finding a business partner can take a great deal of weight off a person’s shoulders, but it is important to have foresight. The way partners share losses and gains depends on contractual agreements. It helps to understand the three most common types of partnerships and the conditions of each.
Limited liability partnership (LLP)
When associates work in the same field, they may have the option to form an LLP together. This type of partnership is especially common for architects, land surveyors, lawyers and public accountants. In an LLP, none of the parties are liable for the actions of the other. Not only can an LLP be very helpful, but some insurance policies require it.
Limited partnership (LP)
An LP requires a limited partner and a general partner. The general partner’s liability has no limits, and a limited partner’s liability depends on how involved he or she is in business proceedings. In many cases, limited partners do not participate in the business’s activity at all, so obligations and debts do not fall on them.
General partnership (GP)
Everything is a joint venture in a GP. General partners coordinate the business’s actions together, and all parties are equally liable for carrying out their agreement fully. The only exception to this rule is if there are attenuating legal issues.
A business owner should evaluate his or her circumstances before making any agreement. The wrong kind of partnership can destroy a company and bring on legal trouble, while the right kind can go a long way in ensuring success.