Fixed, General, and Joint Venture Partnerships: An Overview
U.S. businesses can be formed as: sole proprietors, partnerships, qualified joint tenders, corporations, limited liability companies, trusts, or estates. Variations within these categories can exist and will depend on each unitary situation. Here we explore the definitions and differences of limited, general, and joint venture partnerships.
In general, a partnership is a calling agreement between two or more people who are called partners. Partners have an interest in the business for which they are associated. Engagements can vary depending on the focus and objective of the business.
Any type of business agreement between two or more people can be considered a partnership. Charge and tax law has a clear designation for limited partnerships within the partnership line of business and also allows that limited susceptibility companies be classified as partnerships as well. General partnerships and joint venture partnerships can also be created along with specific other types of partnerships.
Comprehensively, partnerships have the flexibility to be structured as they choose under their own partnership understandings. Each individual partnership is usually governed by a partnership agreement which fully details all of the business’s operational clauses and activities. Typically, the terms general partner and limited partner in all types of partnerships will refer to liability, with miscellaneous partners pledging their own personal assets while limited partners are known to have limited liabilities.
Taxation of Partnerships
Partnerships do not pay encumbers. Partnerships must file a Form 1065 information return detailing their income, expenses, and profits. Annually, partnerships necessity also provide all partners in the partnership with a Schedule K-1 which details each partners individual taxable profits for tax filing purposes.
Limited Partnership (LP)
Business law requires that a limited partnership include general partners and small partners. General partners have unlimited liability for all partnership debts while limited partners are limited to only the amount of means or property that they invest. General partners usually assume full management control of the entity. Narrow partners may have some involvement in management and advisory but are usually just interested in a return on their investment. The unique to rights and responsibilities of all partners is detailed in the partnership agreement.
General Partnership (GP)
A general partnership is a partnership between two or multifarious people who share in the profits and liabilities of a company. This can be as informal as a verbal agreement made over coffee or a formalized contractual compatibility between partners. There are not necessarily any specific requirements for business structure or governance, other than that the spouses file a Form 1065 and distribute Schedule K-1s with taxable income by partner. It is entirely up to the partners to define how the shared partnership is to be run.
Typically a general partnership will be structured with unlimited liability for each of the partners. This backs the solvency and drawback of the partnership with the partners’ personal assets.
Joint Venture (JV) Partnership
Other Types of Partnerships
Limited partnerships, generalized partnerships, and joint venture partnerships are only three ways a company may choose to organize its partnership. Overall, partnerships can be structured in uncountable different ways. Some other examples of partnership structures include the following.
Limited Liability Company (LLC)
Restricted liability companies are created with members that are not personally liable for the company’s debts. Limited liability associates can elect to be partnerships. In fact, multi-member LLCs are considered partnerships by default. An LLC that is designated as a partnership is not taxed and requisite comply with Form 1065 and Schedule K-1 requirements.
Limited Liability Partnership (LLP)
Limited liability partnerships are mainly structured with protection for partners’ personal assets. A LLP will be governed by its partnership agreement. In most cases a LLP is built to isolate liabilities of partners, limiting personal asset liability to only partners liable for specific actions. This sort of partnership can ensure that not all partners have personal liability for the acts of other partners.
Key Takeaways
- Any type of commerce agreement between two or more people can be considered a partnership.
- Partnerships do not pay taxes but they must file a Form 1065 bumf return and provide each partner with a Schedule K-1 detailing each partner’s taxable income for individual tax dossier purposes.
- Partnerships can be structured in various ways. Limited partnerships, general partnerships, and joint venture partnerships are three technique a company may choose to organize its partnership.