A partnership involves two or more persons carrying on a business for profit. The business is not a separately taxed entity, but rather, a conduit where the profits or losses of the partnership flow through to the partners. There are two basic types of partnerships: a general partnership and limited partnerships.
A general partnership involves two or more persons who agree to create a business and to share the profits and losses. All of the partners share equal rights and responsibilities in managing the business. In addition, each general partner assumes full personal liability for the debts and obligations of the partnership.
A limited partnership involves two or more persons who agree to create a business and share in the profits and losses. A limited partnership has at least one general partner and at least one limited partner. The general partner is responsible for managing the business affairs, while the limited partner typically provides only capital to the partnership. As in a general partnership, each general partner assumes full personal liability for the debts and obligations of the partnership. The limited partner’s liability is limited to their investment in the business.
In order to form in California, a limited partnership must first file a certificate of limited partnership with the California Secretary of State. A limited partnership formed in another state must register with the California Secretary of State prior to conducting business in the state.
• A partnership is a flexible form of business and relatively easy to set up.
• The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable.
• A separate bank account should be established to run the operations.
• A partnership allows more than one owner, unlike a sole proprietorship.
• The cost to form a partnership is generally less expensive than forming a corporation.
If you need help in forming a Partnership, please contact Legal Support Center.