Question

three different types of partnerships and provide the elements/details of how each one is organized and explain the differences between each type of partnership. A summary paragraph per entity

Answer 1

1. General partnership - A general partnership can be created between two or more owners for a specific business purpose. All partners share equal a) rights in the business and b) responsibilities towards the management of the business. Any one of the partners can accept a legal obligation on behalf of the entire group. Similarly, each individual partner can assume full responsibility for all the debts and obligations of the business. All profits are directed to the partners and are taxed to them and not the business.

All partners are equal in this partnership and must agree to major decisions unlike in the other partnerships. They also must take on personal responsibilities for the business's debts and any incurred by the other partners. This means that any partner's personal assets may be attached by a court or credit. This is the reason that general partnerships are not usually preferred. Any changes to the equality of the partners can be achieved through a formal written agreement.

2. Limited partnership - A limited partnership allows the partners to limit their personal liability to the amount of their business investment. However, at least one partner must take on a general partnership status where he/she is personally fully liable for the debts and obligations of the business. The general partner has the right to control the business while the limited partners do not get to participate in management decisions. All partners benefit from the company's profit.

This type of partnership includes both limited and general partners. While the general partner manages the day-to-day business, the limited partner does not and can be just an investor who just wishes to invest some capital and make a profit on it. This however means that they cannot claim partnership losses in personal tax forms even if they don't have other income to offset it. The general partners can be held personally liable while the other limited partners cannot, which is why this type of partnership might not be equally beneficial to all partners.  

3. Limited liability partnership - A LLP has the same tax advantage as a general partnership and also offers some personal liability protection to the partners. Individual partners cannot be held personally responsible for the criminal or wrongful acts of other partners, or the debts and obligations of the business.

All partners here are limited partners and have limited liability due to negligence, malpractice, errors by the company's employees and other partners. LLPs can have different tax rules apply to them than to a limited partnership as in, the pass-through taxation rule (applicable to general partnerships) can be applied here so that business profits can be shown and taxed on the partners' personal tax returns (instead of the business being taxed directly).