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WHAT ARE SOME OF THE COMMON TYPES OF PARTNERSHIPS?The most common forms of business organizations include:
The type of business that you operate determines issues such as the extent of personal liability that you have from the business and how the business is taxed. The legal structure of your business is extremely important. State law enables you to create a legal entity - a separate "identity" from your own person - under which you can transact business, without the risk of exposing your assets to any personal liability that might arise out of your business affairs. DO I NEED A FICTITIOUS BUSINESS NAME STATEMENT?Depending on your state law, most partnerships operate under a fictitious name and are required to complete a fictitious business name statement, publish the statement in a newspaper of general circulation, and then record this information with the County Recorder where the business is located. Corporations are generally exempt, as are businesses that use your own name. If you are "doing business as" (d/b/a), generally you need to comply with fictitious business name rules. WHAT IS A SOLE PROPRIETORSHIP?A sole proprietorship is the for of business affords the least amount of asset protection. Anything you do in business as a sole proprietorship exposes your assets, while you try to make a living. There is no personal liability protection for acts done while doing business. HOW ABOUT GENERAL PARTNERSHIPSIn terms of asset protection, general partnerships can be even worse. Anything that one partner does affects all of the partners, because each partner of the of the general partnership is personally responsible for all obligations of the partnership. Thus each general partner's exposure to risk is increased by a factor equal to the number of general partners in the business. Rather than carrying personal liability for activities arising out of business, you need to consider other available forms of business associations which provide greater protection. But remember - a change in the form of business ownership may affect the degree of control you have. Changing the form of business ownership also requires documentation of the transaction. A set of documents to govern how the business operates may be required and operational records for the business may need to be maintained. Tax reporting requirements and rules of taxation differ, depending on the structure of the business. The cost of creating and maintaining these documents, both initially as the business entity is formed and into the future as the entity operates, is a critical factor to consider. Some of the more common forms of business ownership which reduce personal liability include: WHAT IS A LIMITED PARTNERSHIP?A Limited Partnership ("LP") is an association of one or more general partners together with one or more limited partners to conduct business for profit as co-owners. The most important feature of a LP is that the limited partner enjoys limited liability as long as s/he does not participate in the control of the partnership business. The general partners of the LP are the ones who are responsible for the obligations of the LP. In a limited partnership, it is the general partner who remains liable for the debts and obligations of the entity. For larger risk exposure, a corporation may be formed to serve as the general partner. A corporate general partner is protected from direct attack by a judgment creditor because the ultimate liability for the debts and obligations rests with the shareholders. By spreading share ownership, individual exposure is considerably reduced. Even without a corporate general partner, risk can be spread by distribution of limited partnership shares. If a judgment creditor obtains a charging order against one partner, the order goes to that partner's share in distributions from the partnership, and not to the entire business.
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