Business planning starts with determining what type of entity your business will be. The legal definition of a
partnership is an association of two or more persons to carry on as co-owners of a business for profit. There are two basic types of partnerships, general partnerships and limited partnerships.
While creating a partnership agreement isn’t required, it’s a smart thing to do. A written partnership agreement helps to avoid misunderstandings between partners. Failure to have a written agreement will result in default rules based on the states statute. Establishing a written agreement is the perfect opportunity for partners to discuss various aspects of the business and expectations of each partner.
A General Partnership is the simplest and least expensive partnership to operate. It does not require any documentation to be filed with the state to establish. Partners are personally liable for all business debts and obligations, including court judgments. This means that if the business itself can’t pay a creditor, such as a supplier, lender, or landlord, the creditor can legally come after any partner’s house, car, or other personal possessions.
A Limited Partnership is very similar to a General Partnership. A Limited Partnership has at least one General Partner and at least one Limited Partner. The General Partner controls the company’s day-to-day operations and is personally liable for business debts and obligations. General Partners are personally liable for all business debts and obligations, including court judgments. This means that if the business itself can’t pay a creditor, such as a supplier, lender, or landlord, the creditor can legally come after the General Partner’s house, car, or other personal possessions. The Limited Partner is a passive investor whose liability is limited to the amount they have contributed. A Limited Partner can lose their limited liability protections if they become more active, such as managing aspects of the business.
Limited Liability Company
A Limited Liability Company (LLC) is not a partnership, but rather a common alternative to a partnership. The LLC provides liability protections to the partners that a partnership does not permit. The LLC typically provides the best features of a corporation and a partnership.
In both general and limited partnerships, General Partners have unlimited personal liability since they manage the business. When handling partnership business, General Partners are liable for not only their own conduct, but that of their fellow General Partners, known as joint and several liability. Limited Partners only risk their capital contributions in limited partnerships, similar to shareholders in a corporation or members in a LLC. Limited Partners may become personally liable for business obligations if they participate in managing the business or if they sign a personal guarantee for the business.
LLC members are not typically personally liable for LLC debts or legal liabilities, which means that only their financial contributions to their LLC are at risk. LLC owners may still be personally liable for personally guaranteed LLC loans, their own conduct if it harms others, or if they breach their duties to their LLC. Business owners should consider appropriate insurance and other liability protection strategies to help shield personal assets and business resources.
About Oakstone Law, PL
Oakstone Law PL was founded by Bob Kleinknecht. A member of the Florida Family Trust Company Subcommittee, the Estate Tax & Trust Planning (ETTP) Committee and the Real Property, Probate & Trust Law (RPPTL) Section of the Florida Bar, Kleinknecht has 15 years’ experience.
Prior to founding Oakstone law, he spent more than eight years serving as a personal, in-house estate, tax and charitable planning attorney for a Forbes 400 family in New York and Florida. Before that he was an estate planning and estate settlement attorney with prominent firms in Boston and Washington, D.C. after beginning his career with a boutique firm in Naples, Florida.
Licensed in Florida and Massachusetts, Kleinknecht has developed a practice model that eliminates billing by the hour and offers a streamlined, customized client process supported by technology, security and a personal approach.
For more information on Oakstone Law, click here. To get in touch with us, click here to send us an email, or call 239-206-3454. Our office is located at 5137 Castello Drive, Suite 2 in Naples, Florida 34103.