General Partnership

This type of entity is formed when two or more people come together for the purpose of conducting a business.  In forming a partnership, all partners must agree on which duties they will each take on and what percentage of ownership they will each hold.  Typically this is done with a partnership agreement that should be put together by a lawyer.

Similar to sole proprietorships, partnerships have many of the same advantages and disadvantages.  Like sole proprietorships, partnerships are easy to form, but they are taxed according to the tax levels of each partner.  Likewise, no liability protection is offered. Again, businesses should seriously consider the consequences of litigation without any shield to protect the owners’ personal assets.  Consider the advantages of either a Nevada Corporation or Nevada LLC by comparison - you may find that incorporating a business is a more suitable option depending upon your circumstances.

Advantages

• Ease of Formation
• Pass-Through Tax Treatment (i.e., Simplicity of Reporting)

Disadvantages

• Personal Liability
• Lack of Continuity
• Lack of Investment Flexibility

Limited Partnership

Limited partnerships are composed of a minimum of two types of participants: general partners and limited partners.  General partners accept the responsibility for and take all the risks involved in managing and conducting the business.  Limited partners, on the other hand, are investors who share some risk, depending on the amount invested, but who have no participation in the actual management of the entity.  Limited partners simply enjoy the profits, and share in the losses, on the basis of what is stipulated in the partnership agreement.  These provisions provide limited liability protection, but they do not allow any privacy for the parties involved.  Limited partnerships are often used for estate planning purposes.  These vehicles allow individuals to control their assets, while still having the ability to pass ownership of those assets along to their heirs.

Advantages

• Pass-Through Tax Treatment (e.g., Simplicity of Reporting)
• Financial Flexibility
• IRS Discounting upon Death (e.g., Lower Estate Taxes)

Disadvantages

• Liability of the General Partner(s)
• Lack of Control for the Limited Partners
• Lack of Investment Flexibility

Please contact Roger P. Croteau & Associates, Ltd. for further information.