Starting a new business can be both exciting and terrifying. You’ll have a lot of decisions to make at the outset, including what form your business will take. If a partnership is one of the forms you’re considering, it’s important to understand the different types of partnerships available and their strengths and weaknesses.
The Illinois Uniform Partnership Act of 1997 is the law which controls the formation and operation of any partnership. Under the Act, a partnership is formed when two or more individuals begin doing business for profit. Even if the individuals did not specifically intend to form a partnership, once they start conducting business together, the partnership is formed.
The general partnership is the most basic partnership form and the simplest to start. It requires no filing or documentation to begin the business. Each of the partners has the authority to manage the business and make decisions regarding its day-to-day activities. The biggest disadvantage of the general partnership is that it provides little protection – each general partner is jointly and severally liable for the partnership’s debts and liabilities.
Limited partnerships have at least one general partner and at least one limited partner. General partners are treated much the same as they are in a general partnership but limited partners are not. Limited partners do not have management authority or control over the day-to-day operations. In exchange for this limited control, the limited partner has substantial protections which the general partner does not. The limited partner is only liable for debts and obligations up to the amount of their investment, rather than being jointly and severally liable.
Limited liability partnership
An LLP is a business form typically used by those providing professional services, such as doctors, lawyers or accountants. Each of the partners is shielded from the liability of the others – such as individual malpractice claims – making it a great way for professionals to pool resources without risking all of their personal assets.