Partnerships

Partnerships are the oldest legal form of business. In modern business, the traditional partnership is fraught with legal risk. Learn how to organize and manage partnerships.

Partnerships

Definition

A general partnership1 is a type of legal entity2 created by state law3

Reason to Form a Partnership

Partnerships provide pass-through tax status for the partners. There is no double taxation of partnership profits. Pass-through tax status is the hallmark of partnerships, limited liability companies, and S corporations.

The challenge for the traditional partnership, unmodified by agreement or statute, is joint and several liability4 Most types of partnership are designed to address this issue with partnerships.

Types

Partnerships as group have grown in popularity as part of the class of pass-through entities.5.

There are four types of partnership:

  • General partnerships,
  • Limited partnerships,
  • Limited liability partnerships, and
  • Limited liability limited partnerships.

Each type of partnership has its own requirements and tradeoffs, which are discussed in those articles.

Basic information

After you form a partnership, you must maintain it to keep it in compliance. Track the following information for a partnership:

  • Legal name is the trade name of the partnership. If the state requires registration of the partnership, then it is the legal name on the registration.
  • Address should be the principle place of business.
  • Registered Agent or legal address is the place where you receive service of process.
  • Website is not legally required but is part of standard contact information.
  • Email is not legally required but is part of standard contact information.
  • Phone is not legally required but is part of standard contact information.
  • Place of Organization is the legal jurisdiction where the partnership is organized.
  • Legal Form is the type of partnership, such as: general, limited, limited liability, or limited liability limited).
  • Tax Status is pass-through, unless there is an applicable exception.

Documents and filings

This table summarizes the types of partnership documents and filings:

Type Timing6 Expiration7
Organizational filings at formation No
Partnership agreement at formation No
Minutes ongoing No
Insurance ongoing Yes
Filings ongoing Yes
Partnership tax returns ongoing No
K-1s8 ongoing Yes
Capital account at formation No
Other ongoing Yes

Officers and directors

Management and ownership structures depend on the partnership agreement, types of partnership, and state law.

General partnerships, for example, separate ownership from management with a class of limited partners who do not manage the business. The general partners manages the business.

People often serve more than one role so it is important to list roles and who serves those roles. In the long run, it is also helpful to track terms of service for each role and person.

Here is the information to track for officers and directors:

  • Type of Role: officer, director, or other (consultant, lawyer, accountant, or auditor)
  • Title: chair, director, President and CEO, Treasurer, Secretary, etc.
  • Name: first and last name
  • Start Date (term of service): date of appointment
  • End Date (term of service): date appointment ends

Please note that a person can have two different roles with very different terms of service.

Ownership

Partnership owners are called "Partners" or "General Partners". Ownership interests are called "partnership interests".

You should capture the name of the owner and the percentage of ownership at a minimum.

Conclusion

To preserve the benefits of your legal entity, effective ongoing maintenance is critical.

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