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What are the Different Kinds of Partnerships?

At its most basic level a partnership is a sole proprietorship with more owners, however, there are a couple of types of partnerships in Missouri which offer different advantages, in fact, some kinds of partnerships can be quite complex.


If you are considering starting your business as a partnership in Missouri it is important to know the difference between each type of partnership structure available.


The different types of partnerships in Missouri are; 1) the General Partnership, 2) the Limited Partnership, 3) the Limited Liability Partnership, and 4) the Limited Liability Limited Partnership.


1. General Partnership


The general partnership is essentially a sole proprietorship where the person starting the business has a partner. Alternatively, general partnership is automatically formed if a pre-existing sole proprietorship adds a partner.


Forming a general partnership is simple and no filing with the state is necessary, although Missouri will still expect you to pay taxes. In fact, a general partnership is created simply by operating a business as a partnership.


One thing to keep in mind if you choose to operate as a general partnership is, partners share responsibility for the liability and debts of the partnership. Each partner can bind the partnership to different obligations and debts. This means, if your partner takes on an obligation for the partnership you are also responsible for that obligation.


In fact, partners are jointly and severally liable for the acts of their partners. Meaning, if one partner is held liable for something, even if you were not involved in the decision or act, you can still be held completely liable for the action of your partner. This can create a huge problem, always choose partners carefully.




One major benefit of a general partnership is that general partnerships are subject to pass through taxation, meaning each partner is taxed in their personal taxes for whatever share of partnership profits they receive.


Finally, while a general partnership is not required to draft a partnership agreement, it would be wise for every Partnership to draft an agreement outlining the responsibilities, rights, and privileges of each partner.


2. Limited Partnership


A limited partnership may be used to eliminate some of the personal liability risk for some of the partners in a partnership.


With a limited partnership there are two kinds of partners, a general partner and a limited partner.


General partners have the ability to bind the partnership and can be held liable for partnership obligations. Limited partners do not have the power to bind the partnership and are thus protected from liability for the obligations of the limited partnership.


A limited partnership must be formed and filed with the State of Missouri, but there is no annual report required. Additionally, the state requires that limited partnerships maintain records of; current and past partners including their general or limited status, and a copy of the limited partnership’s tax returns for the three most recent years.


Any time a new general partner joins the partnership, or any time a general partner withdraws from the partnership, the State of Missouri must be notified.


As with the general partnership a partnership agreement is not required, but again, it is something you really should have in place.


3. Limited Liability Partnership


While the limited partnership only protects limited partners from liability the limited liability partnership protects all partners from liability.


In a limited liability partnership or LLP, partners are not liable for the debts, obligations, or liabilities of the partnership. In an LLP partners are only held responsible for obligations resulting from their own negligence or misconduct.


To form an LLP a partnership must apply with the State of Missouri and if approved, the LLP must renew its registration on a yearly basis.


In addition to this yearly registration an LLP must maintain records of its partners, a copy of the partnership agreement, and copies of the partnership’s tax returns for the last three years.





4. Limited Liability Limited Partnership


To form an LLP, a general partnership applies for the liability protection of an LLP. A limited liability limited partnership or LLLP is what is formed when a limited partnership applies for liability protection.


An LLLP gives protects to both general and limited partners from personal liability for the debts, obligations, and liabilities of the partnership. But partners are, or course, still liable for their own negligence or misconduct.


To form an LLLP, a limited partnership must apply to the state of Missouri. Once registered the LLLP must renew its registration on a yearly basis.


An LLLP must maintain the same records as an LLP.


 

If you have any questions about what direction is best for your business, would like help drafting a partnership agreement, or have any desire to start a partnership, please reach out to us at Hometown Law. We want to help!

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