There are two kinds of partnerships: general partnerships and limited partnerships. In all partnerships, the general partners manage the business of the partnership.

GENERAL PARTNERSHIPS:

A general partnership is any association of two or more persons (defined as human beings or other business entities) who carry on a business as co-owners. A general partnership can come into existence by operation of law, with no formal papers signed or filed, however, it is strongly recommended that the partners enter into a binding legal agreement. A partnership is always a general partnership unless the owners comply with the special requirements for establishing a limited partnership. This entity faces the same advantages and disadvantages as the sole proprietorship. The primary disadvantages being the unlimited personal liability of the owners.

LIMITED PARTNERSHIP:

A limited partnership can be created only by a written agreement between or among the partners, and a certificate of limited partnership must be filed with the Secretary of State. There are two types of partners in a limited partnership: one or more general partners who are each liable for all the debts of the partnership and one or more limited partners who are not liable for the debts of the partnership beyond the amount of money they have contributed to the business. Partnerships must obtain a federal tax identification number or FEIN. This number is used in place of a personal social security number for tax and identification purposes. Taxes are treated similarly to the sole proprietorship. A partnership must file a tax return, however, any amount owed is passed through to each partner’s personal tax return by way of an IRS form K-1. The advantage of a partnership, like a sole proprietorship, is lower cost , ease of setup, and simplicity of management. Like a sole proprietorship, the greatest disadvantage of partnerships is their lack of insulation from the personal liability of the general partners.