Partnership vs LLC
You might want to start a business with a group of investors and 2 of your college roommates. Look no further, because you may be interested in starting a Partnership. Today we will identify the major components and differences between the 4 types of Partnerships.
Similar to a Sole Proprietorship, a Partnership has more than 1 owner. Several variations exist, and the differences start to get increasingly complex. General Partnership (GP), Limited Partnership (LP), Limited Liability Partnership (LLP), and finally, Limited Liability Limited Partnership (LLLP). You may want to consider any variation of these partnerships if you want to start a business with other people.
You will need to register your business with the state in which you choose to operate if you choose an LP, LLP, or LLLP. Keep in mind that every state can be different. For example, California does not allow the formation of an LLLP.
A few major differences exist between these partnerships. You will want to start a GP if all of the owners will have an equal right to operate the business. You will want to start an LP or LLP if you plan on having general partners and limited partners. General partners have full rights and full liability for operating the business; limited partners do not have the authority to make decisions, and they are not personally liable for the entity. However, not all states allow the formation of an LLP, and some states only allow specific businesses to form an LLP such as lawyers or engineers. It is very important to check with your state regulations before making any decisions.
You are probably wondering, why don’t I just start an LLC? All partners in an LLC have at least some authority to manage the operation, but limited partners in an LP do not have the right to manage any of the business operations. I will talk more about an LLC in tomorrow’s post, but to wrap it all up: you may want to consider forming a GP, LP, LLP, or LLLP simply because you will pay less money in registration and legal fees than you would if you form an LLC, or if you want to have limited partners who can invest in the business but not have the right to make decisions regarding the actual operations. The partnerships provide less protection from liability, but they will be easier and cheaper to form if you want to start a small business!
