Suppose you’re starting a new business with one or more other owners, but you do not want it to be a Company. You can choose to form a partnership or limited partnership, which are the main alternatives to the corporate form of a business.
The key features of these two ownership structures are:
General Partners – are subject to unlimited liability. If a business can’t pay its debts, its creditors can reach into general partners’ personal assets. General partners have the authority and responsibility to manage the business. They are roughly equivalent to the managing director and other high-level managers of a business company. The general partners usualy divide authority and responsibility among themselves, and often they elect one member of their group as the senior general partner or elect a small executive committee to make major decisions.
Limited Partners – escape the unlimited liability that general partners have hanging around their necks. You can reduce the more painful consequences of entering into a partnership by having your involvement registered as a limited partnership. A limited partnership is very different from a general partnership. It is a legal animal that, in certain circumstances, combines the best attributes of a partnership and a corporation.
A limited partnership works like this. There must be one or more general partners with the general partners with the same basic rights and responsibilities (including unlimited liability) as in any general partnership, and one or more limited partners who are usually passive investors. The big difference between a general partner and a limited partner is that the limited partner isn’t personally liable for debts of the partnership. The most a limited partner can lose is the amount that he or she paid or agreed to pay into the partnership as a capital contribution; or received from the partnership after it became insolvent.
To keep this limited liability, a limited partner may not participate in the management of the business, with very few exceptions. A limited partner who does get actively involved in the management of the business risks losing immunity from personal liability and having the same legal exposure as a general partner.
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