A partnership allows two or more people to share ownership and liability of a business. Partners are jointly and/or individually responsible for the business as well as liable for the actions of the other business partners. One of the key benefits of using a partnership is that with shared liability and multiple partners, more capital can be raised.
A general partnership requires that each partner in the company is held responsible for the debts and liabilities of the business. Each partner can also be held responsible for the actions of the other partner taken on behalf of or in service of the business.
The advantages and disadvantages of a General Partnership Company are as followed:
- Set Up and Maintenance: Partnershipsare easy to set up and manage in comparison to limited companies.
- Partnership as an Incentive: General partnerships tend to attract and retain employees as partnership can be offered as an incentive.
- Raising Capital: Capital can be raised from partners and outside sources such as banks.
- Liability: Partners are personally liable for the business’ debts and liabilities. Partners’ personal assets can be held accountable for business debts and losses.
- Liability for Partners’ Actions: Each partner can also be held responsible for the actions of the other partner taken on behalf or in service of the business.
- Personal Conflict: Overall company growth can be deterred by conflicting opinions and goals. Personal disputes can cause issues in the management and daily business practices of the company.
- Profit Sharing: Profits from a general partnership must be shared between all parties.
A Limited Partnership has both general and limited partners. General partners have unlimited liability for the company’s debts and are involved in the businesses’ decision making process. Limited partners’ liability is restricted to the amount of their contribution to the capital of the partnership. Limited partners are not able to be involved in the decision making process of the company.
The advantages and disadvantages of limited partnerships are as followed:
- Limited Liability of Limited Partners: Limited partners are not personally liable for business debts or liabilities, or for the actions of other partners.
- Flexibility of Limited Partners: Limited partners can be replaced without dissolving the partnership.
- Investment Separate from Management: Clear definition of managing partners from limited partners allows for funds to be raised without affecting how the business is managed.
- Personal Liability for General Partners: General partners are personally liable for the debts and liabilities of the company. Also, general partners are liable for actions taken by other partners on behalf of the company.
- Limitations for Limited Partners: Limited partnerships are required to be passive investors.