THE FLAVORS OF PARTNERSHIP: A LIABILITY ANALYSIS
There are 3 kinds of partnership that exist today: the general partnership, the limited partnership, and the Limited Liability Partnership. Each offers unique advantages and disadvantages over the others with things like exposure to liability, and tax advantages vary from form to form. Our Green Bay, Wisconsin law firm can help you decide which form of partnership is best for your business and how to manage liability issues.
WISCONSIN PARTNERSHIP BENEFITS
Partnerships offer a lot of flexibility when it comes to distributing income and losses, unlike like corporations which are usually forced into distributions equaling shares held. All partnerships have flow through accounting of profits and losses and are reflected on their personal tax returns via the schedule K on their federal income tax returns. This avoids the double tax of the c-corp. Partnerships also facilitate the moving of capital in and out of partnerships efficiently via capital accounts maintained by the partners. Partnerships can be an effective way of doing business if structured properly. Exposure to liability is one of the key factors that change depending on what form of partnership is chosen.
The general partnership is what most people think of when they think partnership. In this form of partnership, both partners are personally liable for the debts of the partnership. This form is usually selected by people who are both actively involved in the managing and running of the business. This is also the default form of partnership. This form of partnership offers the most risk to all its members.
The limited partnership adds another layer to the partnership by adding limited partners to the pool of potential partners. The limited partner does not share the unlimited personal liability of the partnership, however this does limit the amount of losses he recognize up to his capital account balance. This usually prevents him from going below 0. The limited partner can only lose his investment and nothing more. A limited partner is also restricted in what kind of roles they can play in the partnership. All limited partnerships require at least 1 general partner. This can put a lot or all of the risk on the general partner(s), but gives limited partners a reason to invest capital without exposing themselves to liability.
The Limited Liability Partnership (LLP) functions a lot like an LLC does. In this set up, all the partners have limited liability. This means they can only lose their initial investment. As a result this combines the protections of the corporation with the flexibility of a partnership. This one has the least risk to the partners as none of them are directly liable for the LLP’s actions, barring some very unusual circumstances. This is one of the best forms of partnership, but also requires the most planning. As a partnership that benefits from having what is essentially a corporate veil of its own an LLP has the least liability exposure amongst its partners compared to the other forms of partnerships.
GREEN BAY BUSINESS PARTNERSHIP ATTORNEYS
With all the flexibility partnerships have comes some inherent complexity. Our Firm has extensive experience with creating partnerships and with resolving that arise from them. Contact local Green Bay, Wisconsin Attorney David D. Daul or Attorney Warren Wanezek for a consultation on creating a business partnership, or effectively managing legal issues involving your partnership. The attorneys at Wanezek, Jaekels, Daul & Babcock are ready to help you with the legal needs of your Green Bay area business.