A partnership is a form of business owned by two or more partners. Partnerships can range from simple, 50-50 ownerships between two people to more complicated partnerships, with limited partners and general partners. Partners agree to the percentage of each partner's ownership in the company. There are no federal guidelines for the establishment of partnerships and therefore no minimum interest amount that a partner can have in a company.
A partnership has a different formation and taxation structure than sole proprietorships and corporations. In a partnership, the partners agree on what percent of the company each person owns. Each owner has as much say in the company as her ownership percentage. All partners are responsible for company profits, losses, debts and legal obligations. The exception is in the case of limited partnerships, in which limited partners have less say in running the company than general partners but also have less liability.
In a general partnership structure, owners assume equal responsibility for the governance of the business, and divide revenues equally. General partnerships are often split 50-50, but some partners agree to have different percentages of ownership so there is not a standstill if disagreements arise on decisions. In some cases, partnerships include a 1-percent owner in order to have a third party who can make decisions in the case of ties or deadlocks. In larger partnerships, owners split interest in the company. Four partners may have 25 percent interest in the company, for instance. In partnerships with an unequal distribution, the percentages assigned to each partner must be documented in the partnership agreement.
Read More: How to Convert a General to a Limited Partnership
Limited Liability Partnership
Limited partnerships allow some partners or investors to have limited liability in the company, along with limited input in the decision-making process. The limited partnership still has one or more general partners who are held responsible for the company's legal and financial debts and obligations and who also run the company. Limited partners are similar to shareholders in a corporation, and are only liable on debts incurred by the company to the extent of their registered investment. Limited liability partnership structures have one or more general partners and one or more limited partners. As with the general partnership, the partners agree on how much interest each partner has in the company. The partnership agreement also determines how much the general partners pay the limited partners as a return on their investment in the company.
All partnership businesses should draft an agreement form that includes the percentage of ownership each partner has in the company. The percentage of ownership usually determines how partners agree to split profits and debts, which should also be included in the agreement. A partner must have an interest that is greater than zero to be included in the company, but beyond that, there are no minimum restrictions. Large partnerships may have several people with small interest amounts, and two-person partnerships may add a third person as a 1-percent owner and decision maker.
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