Finding the right business structure is one of the most important steps to take when starting a successful venture. It determines your daily tasks and how much taxes you need to pay. One of the most commonly adopted structures in the country is business partnerships.
Recent statistics show about 4.2 million partnerships and more than 28.2 million partners in the country. It has four types of structures, each with distinct advantages and disadvantages.
If you want to start a business partnership and determine the best one for your needs, we’re here to help. This blog will explore partnerships and how you can find the right one for your startup.
What Are Partnerships?
Partnerships are businesses with multiple owners. And just like sole proprietors, partners aren’t separated from their business. They can be held liable for the startup’s profits, losses, and more.
One of the main reasons this structure is popular is how easy it is to file. It doesn’t require a lot of paperwork and is more affordable than corporations. You can enjoy the same tax perks with less paperwork and filing fees.
Four Types of Business Partnerships
Choose from four main types of business partnership structures, depending on your goals. These are the following:
General partnerships are the most basic form you can adopt for your business. Unlike other structures, you’re not required to register it within your state. You can easily form them through an agreement and start operating.
In this setup, each person participates actively in running the business. They can agree to any contract on behalf of the company. But having this much power also means having more responsibilities.
You and your partner will likely be responsible for the debts and liabilities the company can have in the future. If the other partner takes out a loan your venture can’t pay, you’ll be liable for paying its debts. The court can take your personal assets whether or not you took out the loan.
This partnership is perfect for startups due to its low costs and fewer formalities.
Forming a limited partnership is ideal for securing more capital. Limited or silent partners are less involved with the actual business or venture and instead focus on investing in the startup for growth.
This setup is perfect for people who want to enjoy the perks of running a business but with fewer liabilities. Their responsibilities and losses are limited to their number of shares. They also can’t be sued on behalf of the company during disputes.
However, limited partnerships still have a few disadvantages. For one, silent partners can easily lose their status if they become more active in the company. Additionally, these partnerships need to be authorized by the state.
You can only operate a limited partnership if you have the required permits and licenses, both of which can be expensive based on where you choose to operate.
Limited Liability Partnership
Limited Liability Partnership (LLP) is a hybrid partnership structure that operates like a general partnership but with better asset protection. Suppose your business is structured like an LLP, and the court decides to sue one of your partners. In that case, they can’t sue the rest of you for that partner’s mistakes.
Medical groups and law firms often use this setup. It provides them with a safeguard in case one of the partners commits malpractice.
It’s also worth noting that only a handful of states allow companies to operate as LLPs. As of now, around 50 states accept LLPs.
Limited Liability Limited Partnership
Limited Liability Limited Partnerships (LLPs) are the newest form of business partnership available in some states. Through this structure, a general partner has limited liability. Meanwhile, the rest of their partners also have liability protection.
If you plan on running a business across different states, there are better choices than LLLPs. Right now, these are the only following states that accept LLLPs;
If your state is not included in our list, it would be best to look for an alternative structure.
Which Business Partnership is Best For An LLC?
Now that we’ve explored the four types of business partnerships, let’s discuss which is best for an LLC.
If you want the same flexibility as an LLC, then the LLP structure is for you. LLPs have the most in common with LLCs among all the business partnerships we mentioned.
The structure gives you the same tax and liability benefits as an LLC. It ensures that you and your partners are protected from any liabilities or debts of your business. Additionally, it protects you from the possible repercussions of the actions of your partners.
LLPs still follow specific tax regulations, but you can always adopt the pass-through entity structure of an LLC to enjoy various taxation benefits.
However, if you don’t prefer the LLP setup, you can opt for a limited partnership instead. Some states allow LPs to appoint an LLC as its general partner but prevent LPs from having pass-through taxation benefits.
We recommend you check with your Secretary of State to find out if you can follow an LP structure.
Build Lasting Partnerships Today
If you’re still undecided on what partnership setup best suits your business, you can always seek the advice of a professional.
NCH’s team of business specialists is here to help you determine the right structure for your venture in Nevada. We can provide you with an objective opinion on which type of partnership structure will help you succeed in the long run. Additionally, we’ll guide you through the endless formalities you need to follow when creating business partnerships.
With our help, starting your own business can be manageable. NCH’s specialists will ensure that all your business formation questions are answered and provide you with the peace of mind you deserve.
For more information on how NCH can help you build lasting partnerships, visit our website here.