Partnerships
Updated:
Partnerships are the oldest legal form of business. In modern business, the traditional partnership is fraught with legal risk.
Definition
A general partnership1 is a type of legal entity2 created by state law.3
Reason to Form a Partnership
Partnerships provide pass-through tax status for the partners. There is no double taxation of partnership profits. Pass-through tax status is the hallmark of partnerships, limited liability companies, and S corporations.
The challenge for the traditional partnership, unmodified by agreement or statute, is joint and several liability.4 Most types of partnership are designed to address this issue with partnerships.
Types
Partnerships as group have grown in popularity as part of the class of pass-through entities.5.
There are four types of partnership:
- General partnerships,
- Limited partnerships,
- Limited liability partnerships, and
- Limited liability limited partnerships.
Each type of partnership has its own requirements and tradeoffs, which are discussed in those articles.
Basic information
After you form a partnership, you must maintain it to keep it in compliance. Track the following information for a partnership:
- Legal name is the trade name of the partnership. If the state requires registration of the partnership, then it is the legal name on the registration.
- Address should be the principal place of business.
- Registered Agent or legal address is the place where you receive service of process.
- Website is not legally required but is part of standard contact information.
- Email is not legally required but is part of standard contact information.
- Phone is not legally required but is part of standard contact information.
- Place of Organization is the legal jurisdiction where the partnership is organized.
- Legal Form is the type of partnership, such as: general, limited, limited liability, or limited liability limited).
- Tax Status is pass-through, unless there is an applicable exception.
Documents and filings
This table summarizes the types of partnership documents and filings:
| Type | Timing6 | Expiration7 |
|---|---|---|
| Organizational filings | at formation | No |
| Partnership agreement | at formation | No |
| Minutes | ongoing | No |
| Insurance | ongoing | Yes |
| Filings | ongoing | Yes |
| Partnership tax returns | ongoing | No |
| K-1s8 | ongoing | Yes |
| Capital account | at formation | No |
| Other | ongoing | Yes |
Officers and directors
Management and ownership structures depend on the partnership agreement, types of partnership, and state law.
General partnerships, for example, separate ownership from management with a class of limited partners who do not manage the business. The general partners manages the business.
Since people serve more than one role, it is important to list roles and who serves those roles. It is helpful to track terms of service for each role and person.
Here is the information to track for officers and directors:
- Type of Role: officer, director, or other (consultant, lawyer, accountant, or auditor)
- Title: chair, director, President and CEO, Treasurer, Secretary, etc.
- Name: first and last name
- Start Date (term of service): date of appointment
- End Date (term of service): date appointment ends
Please note that a person can have two different roles with very different terms of service.
Ownership
Partnership owners are called “Partners” or “General Partners”. Ownership interests are called “partnership interests”.
You should capture the name of the owner and the percentage of ownership at a minimum.
Conclusion
To preserve the benefits of your legal entity, effective ongoing maintenance is critical.
Many states have adopted the Uniform Partnership Act. ↩︎
Exceptions apply ↩︎
Exceptions apply ↩︎