What is a Partnership Business Entity?

By Tom Loonan | Business Law

If you are considering starting a business partnership, there are two different types of partnerships for business entity formations. The two primary partnership structures an entity may consider are general partnership and limited partnership.

General Partnership

A general partnership is the more basic form of partnership. It is established when two or more unmarried people associate and agree to operate a business together. There is no formal requirement for establishing the general partnership, but often times a professional operation will memorialize the terms of their entity governance on a written partnership agreement. The partners agree to share the profits, losses and management of the business and like a sole proprietorship each partner is personally and legally liable for the debts and liabilities of the business. The owners in a general partnership report their share of the profits and losses on their personal tax returns.

Limited Partnership

A limited partnership is a more formalized partnership entity in which there are two types of partners: general and limited. In order to form a limited partnership, the entity must file a certificate of limited partnership with the state. The management and operation of the limited partnership is controlled by the general partner(s) who also shares fully in the businesses profits and losses and assumes the liabilities of the business similar to any partner in a general partnership. Finally, the general partner(s) must pay self-employment taxes on their share of the profits from the company. The limited partners are merely silent partners invested in the entity. Limited partners have no control over the operation of the business but they are also personally shielded from the business liabilities and they are not required to pay self-employment taxes.


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