What are the pros and cons of different types of partnerships?

If you are thinking of starting or expanding a small business with one or more partners, you need to consider the pros and cons of different types of partnerships. A partnership is a legal arrangement where two or more people share the ownership, profits, losses, and responsibilities of a business. There are three main types of partnerships: general, limited, and limited liability. Each one has its own advantages and disadvantages, depending on your goals, preferences, and risks. In this article, we will explain the main features, benefits, and drawbacks of each type of partnership, and help you decide which one is best for your small business.

1 General partnership

A general partnership is the simplest and most common type of partnership. It is formed when two or more people agree to run a business together, without creating a separate legal entity. Each partner contributes money, property, skills, or labor to the business, and shares the profits and losses equally, unless otherwise agreed. Each partner also has equal authority and responsibility for managing the business, and is personally liable for the debts and obligations of the partnership. This means that if the partnership is sued or goes bankrupt, the partners' personal assets can be seized to pay off the creditors. The main advantages of a general partnership are that it is easy and inexpensive to set up, it allows flexibility and creativity in decision making, and it offers tax benefits, as the partnership income is taxed only once at the personal level. The main disadvantages are that it exposes the partners to unlimited liability, it creates potential conflicts and disputes among the partners, and it dissolves automatically if one partner dies, withdraws, or becomes incapacitated.

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Frederick L. Blackmon

Partner at DB Matterhorn Group, Inc., AON Center, suite 5100
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My experience would dictate you speak to an attorney to establish you needs in any partnership! Every relationship has specific goals and initiatives. Each with separate legal requirements!

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Elinor Stutz

International Best-Selling Author @ Smooth Sale | Motivational Speaker, Sales Trainer
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Partnerships come in a great variety, but the commonality is to seek out and verify that you: - Hold similar values and priorities before proceeding. - You stand an excellent chance to enjoy business growth and working together. - Ensure that your long-term goals align and that you can assist one another in achieving them. Most importantly, ensure you perceive customer care similarly to build a returning and referring clientele. You can agree to be a referral agent, paid on commission, or find collaborative partners – all of which are to adhere to the above.

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Siva Sivarajah

Income Tax Consultant at Sivassolutions Inc
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This is what I would like and chose it when the consulting business of Sivas Solutions was started. There were 4 individuals with different talents coupled with more than 20 years of substantial work experience. The liability aspect was clearly discussed in the individual agreements we had through our engagement letters with our individual clients. It's the cheapest way for such a consultancy business

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Louise Brogan

B2B Video & Content Marketing: done for you 👏 Podcaster & YouTube 📽 Small Business Champion 🏆 Speaker 🎙
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Absolutely make sure you are both in agreement as to what you are getting out of the partnership, and have a legal agreement drawn up. Even if this is your friend or family member, keep both of yourselves right by spending a little time and money putting your ducks in a row at the start.

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2 Limited partnership

A limited partnership is a more complex type of partnership that involves two kinds of partners: general and limited. A general partner is similar to a partner in a general partnership, as he or she contributes to the business, shares the profits and losses, manages the business, and is personally liable for the debts and obligations of the partnership. A limited partner, on the other hand, is an investor who provides capital to the business, but does not participate in its management or operation. A limited partner's liability is limited to the amount of his or her investment, and he or she does not share the profits and losses of the partnership, unless otherwise agreed. The main advantages of a limited partnership are that it allows the general partner to attract more funding from the limited partners, it protects the limited partners from personal liability, and it offers tax benefits, as the partnership income is taxed only once at the personal level. The main disadvantages are that it requires more paperwork and legal formalities to set up and maintain, it restricts the involvement and control of the limited partners, and it dissolves automatically if the general partner dies, withdraws, or becomes incapacitated.

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3 Limited liability partnership

A limited liability partnership is a hybrid type of partnership that combines some features of a corporation and a partnership. It is formed when two or more people register their business as a limited liability partnership with the state, and create a partnership agreement that defines their rights and obligations. Each partner contributes to the business, shares the profits and losses, and participates in the management and operation of the business. However, unlike a general partnership, each partner's liability is limited to the amount of his or her investment, and he or she is not personally liable for the debts and obligations of the partnership, or for the negligence or misconduct of other partners. The main advantages of a limited liability partnership are that it provides more protection and flexibility for the partners, it allows them to retain their individual tax status, and it does not dissolve automatically if one partner dies, withdraws, or becomes incapacitated. The main disadvantages are that it is more costly and complicated to set up and maintain, it may not be recognized or regulated in some states or countries, and it may expose the partners to higher taxes or fees in some jurisdictions.

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Dorien Morin

Social Media Strategist | Content Creator | Organic Specialist | Content Marketer | International Keynote Speaker | Certified Agile Marketer |🎙 #StrategyTalks
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This type of partnership is definitely worth setting up. No matter how well you know someone, going into business with someone brings out the best AND the worst in people. I've seen partnerships go sideways more times than I can count and you could be left holding the bag if you do not protect yourself.

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4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the pros and cons of different types of partnerships?

1

2

3

4

1 General partnership

2 Limited partnership

3 Limited liability partnership

4 Here’s what else to consider

Small Business

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What are the pros and cons of different types of partnerships?

1

2

3

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1 General partnership

2 Limited partnership

3 Limited liability partnership

4 Here’s what else to consider

Small Business

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