If you’re on the verge of starting your own business, you may be grappling with the options at your disposal. Should you embark on the journey on your own or form a business partnership. Both have their advantages and disadvantages, and the most viable option for you will depend on your specific situation.
In the following article, we’ll take a closer look at the types of business partnerships you should consider when assessing the opportunity to form a partnership. Bear in mind that laws and regulations may vary depending on the state. Consult with an expert in San Diego, CA, that specializes in a business partnership and income tax management to find a solution that makes the most sense for your situation.
What are the different types of business partnerships?
There are four most commonly used types of business partnerships that you can choose from. Each partnership type has its features and levels of control and liability. They are limited liability company (LLC) partnership, limited liability partnership (LLP), limited partnership (LP), and general partnership (GP).
1. General partnership
A general partnership is formed between two or more parties who run a business venture together. GPs don’t require formal agreements or state registration, so they are easiest partnership to start. They offer tax flexibility; however, they don’t offer personal liability protection, so you are responsible for the actions of your partners actions, and your personal assets are at risk.
2. Limited liability company partnership
A limited liability company partnership (also known as a multimember LLC) consists of two or more owners (individuals or corporations) who are referred to as members. In an LLC partnership, a member can be held responsible for another member’s actions, but it does offer the added benefit of personal liability protection and tax flexibility.
3. Limited liability partnership
A limited liability partnership is a formal agreement between two or more individuals to run a business venture together. Owners of an LLP are protected from the actions of their partners, and they are not personally responsible if a lawsuit is filed against the business (excluding cases of personal negligence or malpractice). LLPs offer management and partnership flexibility, but they do not offer tax flexibility. In some states, only certain professions can form LLPs. This is something to investigate if you are operating in an unapproved profession in multiple states, as some may not recognize you as an LLP.
4. Limited partnership
A limited partnership consists of two or more partners, including at least one general partner and one limited partner. The general partner has control over business decisions and is personally responsible for the business. The limited partner (also known as a silent partner), though, does not make business decisions and is not personally liable. There is some tax flexibility with LPs.
Compare each partnership type to see which level of liability and control suits your needs. When evaluating partnership types, it is important to be mindful of the state rules and regulations that apply to your business type.
There can be great benefits to partnerships in business, just as there are in life. When like-minded people share a common goal, they can draw on their varied knowledge and experiences to make success more likely. Strong partnerships come in all shapes and sizes, and choosing the right type is the first step on the road to success.
Need an expert in San Diego, CA, for business partnership and tax management services? Give us a call!
If you are starting a business with a partner, you should leave no room for surprises. This is where our team comes in. Whether you have a start-up, need bookkeeping or tax management, our diligent and dedicated team of experts is here for you. David York Tax Service is at your disposal in Downtown San Diego and across the region. Give us a call today and schedule your appointment!