As you form your business, you must decide how to structure it. One of the easiest formation structures is the partnership. When you have a general partnership, all partners have equal debt and liability. They have an equal say in the management of the company.
When you decide to form a partnership, you benefit from having a partner at your side. You have an opportunity to collaborate and take advantage of different tax benefits. According to the Small Business Administration, there are differences between limited and limited liability partnerships.
What is a limited partnership?
You have one general partner and other limited partners in a limited partnership. The general partner has unlimited liability, whereas the rest have limited liability. Those with limits also have limited control over the company. When you come up with the partnership agreement, you must specify the amount of power each partner has. As the general partner, the profits pass through you and you must pay self-employment taxes.
What is a limited liability partnership?
If you have a limited liability partnership, then every partner has limited liability. An LLP is similar to a liability partnership, except that you do not have a general partner. Instead, LLPs protect everyone against debts and actions of other partners. If you have a business with multiple owners, you may want to have an LLP because of the protection. If this is your first business with the partners, you do not want to become liable for any of their errors.
Choosing the right business structure will affect how you pay your taxes and the amount of personal liability you have.