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How do limited and general partnerships differ?
January 27, 2023
Running a business alone can be challenging. Bringing someone on board can help ease your workload. It can also broaden your connections and take your business to greater heights. This is where business partnership comes in.
There are generally two types of partnerships you can consider: limited and general partnerships. Each partnership form has its merits and demerits. So which partnership should you form?
Understanding the benefits of each approach
In a limited partnership, one partner (also known as the silent partner) assumes limited liability for the business’s debts and liabilities. However, the limited partner’s liability is dependent on their capital contribution to the business.
Alongside restricted liability, the limited partner’s day-to-day responsibilities in the business are also restricted depending on the member’s contributions.
Here are some of the advantages of a limited partnership:
Liability protection for the partners
Certain tax reliefs
Unlimited cap on capital acquisition
Understanding general partnership
Unlike in a limited partnership, a general partner plays an active role in the business’s day-to-day operations. A general partner can also make decisions on behalf of the business per the articles of the partnership. This also means that if the partnership acquires any debt, this liability is passed on to all the partners.
Here are some of the benefits of entering into a general partnership:
Easy to establish thanks to the less paperwork that is required
Simplified tax processing since profits and losses are passed over to the individual partners
The partnership is easy to dissolve
A partnership can be an excellent option for entrepreneurs who want to start a business together. However, it helps to understand your options when getting into a business partnership.