Question

2. Explain the different types of partners and the importance of partnership agreements.

Answer 1

General Partner- A partner which is responsible for the management. We are responsible for the company's operations. For fact, general partners bear total liability-they are entirely responsible for the company's debts. That means they may seize their personal properties to settle debt obligations or lawsuits.

Limited Partner- Partner with a financial interest in the company but no managerial obligations. Limited partners can not also be held individually responsible for the company's debts, because they do not consciously administer it. The most possible loss for a limited partner is their investment in the company. Essentially, limited partners behave like corporate shareholders.

Limited Liability Partnership- An extension of a GP is Limited Liability Partnerships (LLP). An LLP is basically a GP, in which all partners are shielded from other partners' actions. Essentially, there is no liability for all partners. This is distinct from an LP where there needs to be at least one unlimited liability partner. LLPs retain their flow-through tax status, making them somewhat close to limited liability companies (LLCs).

A contractual arrangement sets out precisely who controls what percentage of an undertaking. A majority partner may take more liability in exchange for more of the profits. He could even argue for the reverse situation, taking less responsibility for day-to-day activities in return for having a bigger investment and getting a bigger share of the income. If the business is sold, a partnership agreement delineates who gets what.

When two partners, each of whom owns 50 percent of a business, disagree, this may lead to problems involving one partner taking decisions without the other's consent. Even if one partner is a majority owner, both partners will decide without the other's permission, unless a partnership agreement restricts one's authority. An successful partnership agreement imposes limitations on each party's decision, or grants one of the partners control over the company.

Some collaborations are general alliances, sharing obligations and liabilities with the partners. Many deals are limited partnerships, one or more of which operate as an entity with little or no commercial operation and little to no liability. A partnership will cover spouses who wish to share in the profits without being involved in the activities and opening themselves to legal problems such as litigation or tax liens.