The prospect of forming a new business in Pennsylvania can be both exciting and overwhelming. Based on the goals you want to accomplish and how you want to operate, one of the first things you need to do is decide on a business structure. Business structures range from the simple (partnerships and sole proprietorships) to the complex (corporations and LLCs).
A partnership is one of the simpler business structures that you can adopt but can be more complicated than a sole proprietorship because there are different types of partnerships you can enter into. According to FindLaw, there are two basic types of partnerships: a general partnership and a limited partnership.
A general partnership is a simple type of business structure in which two or more individuals go into business together, sharing the profits. The partners are not separate from the business for taxation purposes, which means that each partner will need to pay individual income taxes on his or her portion of the profits. Each partner is also personally liable for any debts relating to the business. In other words, creditors can go after partners’ personal assets, such as houses or cars, in order to satisfy any debts that the business owes.
This type of partnership includes limited liability partners, who invest money but do not participate in running the business, and managing partners, who conduct the day-to-day business operations. The relationship among managing partners is similar to that among members of a general partnership, though limited partners remain separate. While the managing partners will still be personally accountable for business liabilities, limited partners are not liable because they are not involved in managing the business.
Partnerships, particularly general partnerships, are relatively easy and inexpensive to form. However, because general partners and managing partners assume personal liability for the business, there is a risk involved in forming a business partnership.
The information in this article is not intended as legal advice but provided for educational purposes only.