ch. 23

general partnership-formation

easy to form; formed by two or more persons entering into a business relationship with the intent to make a profit; no formal organizational document necessary to file with a state agency; a mere handshake may be enough to create a general partnership, this can create certain challenges, like documenting to some third party(bank) that a person is really a partner; most states have adopted the uniform partnership act

limited liability partnership-taxation

for federal income tax purposes, llp treated as a partnership; partnerships arent separately subject to income taxes; income/loss incurred by the partnership flows through to the partners and is reported on the partners' income tax returns

limited partnership-operation

general partner typically has all the authority to manage day to day operations; limited partners have right to vote on partnership matters and to inspect books; partnership agreement important in setting forth the rights, powers, and limitations of the partners

three major forms of partnerships under state law

general partnership, limited partnership, limited liability partnership

uniform partnership act

law governing partnerships in their state

limited liability partnership-owner liability

most significant difference between a general partnership and an llp is in a llp, partners not liable for the debts of the partnership merely by being partners in the partnership; partner typically liable for their own acts of negligence (malpractice), but not for the actions of the other partners; many large law firms and accounting firms are organized as llps

limited liability partnership-formation

must file a document with the state to establish itself as an llp rather than a general partnership; with no document filed, will be treated as general even if partners agree among themselves that they want to be treated as a llp; some states only allow certain professional partnerships to register as llps (doctors, lawyers, accountants, engineers, etc)

general partnership-taxation

not subject to federal income taxation-internal revenue code; partnership reports its income on irs form 1065, doesnt pay income taxes on the income; the info from form 1065 is furnished to each partner, and each partner reports their share of the income/loss on their individual income tax return; most state income tax laws generally follow federal income tax laws and also treat partnerships as flow through entities

limited liability partnership-operation

operations very similar to general partnerships; each partner has the right to engage in management, inspect the books, and vote on partnership matters; each partner can bind the partnership by entering into contracts in their capacity as a partner; any of these rights can be modified by an agreement among the partners

partnership agreement

other internal matters governing the partnership typically set forth here; signed by all partners; would include allocation of profits and losses among the partners, the right to vote on partnership matters, the process of admitting new partners, the process of withdrawing from the partnership, and partnership dissolution

general partnership-owner liability

partners are personally liable for the actions of the other partners within the scope of doing business for the partnership and also personally liable for the debts of the partnership

limited partnerships-formation

partners must decide whose going to be the general partner(s) and who will be the limited partner(s); limited partnership required to have at least one general partner and at least one limited partner; state law requires partnership file a document with appropriate state agency identifying the partnership as a limited partnership and who the general partners are-documents usually called certificate of limited partnership; if partnership fails to file this document, or to renew its status as required by state law, partnership may ten be considered a general partnership causing the limited partners to lose liability protection

limited partnership-taxation

treated as a partnership; partnerships arent separately subject to income taxes; income /loss incurred by the partnership flows through to the partners and is reported on the partners income tax returns

general partnership-operation

under state law, each general partner has the right to manage the partnership; each partner can bind the partnership by entering into a contract on behalf of the partnership; partners have the right to inspect the books and require the partnership to provide an accounting of income and expenses; aka flow through or pass through since not subject to income tax

limited partnership-owner liability

unlike general partners, limited partners in a limited partnership are typically not personally liable or the debts of the partnership

limited liability partnership

variation of the general partnership form; primary advantage of llp over general is that the partners are afforded liability protection from the debts of the llp