At their most basic level, partnerships are unincorporated businesses. In a general partnership, individuals called general partners manage the business and are jointly and severally liable for all partnership debts. The partnership itself does not pay income taxes, rather the income or losses from the business flow directly to the partners on a prorated basis and are taxed at personal rates, or corporate rates if the partner is a corporation. The partners control the business in accordance with a partnership agreement. General partnerships may be used by anyone from small-town stores to international accounting firms. As a result, these diverse ventures have aspects in common. Unlike corporations where shareholders are free to buy and sell their ownership stake and the corporation may continue to exist in perpetuity, each partner has the right to dissolve the partnership and force the sale of its assets, and in some partnerships if one partner elects to leave, the remaining partners may have to agree to continue in business or the partnership will dissolve.
Limited partnerships, like general partnerships, are comprised of two or more owners; there are two classes of ownership: general partners and limited partners. Also, in contrast to general partnerships, limited partnerships are created by statute, not by the intent of the partners. General partners are fully liable for business debts, while limited partners are passive investors and only liable to the extent of capital invested. In exchange for this limited liability, limited partners may not be directly involved in management. In this model then, the general partner, often a corporation, manages the business pursuant to the partnership agreement. Limited partners participate in revenue sharing whereby operating profits and losses are split between the general partners and limited partners. As with a general partnership, the general partners may dissolve the partnership at their discretion.
A Limited liability partnership (LLP) combines elements of partnerships and corporations and comprises two or more owners who may be general partners and/or limited partners. Unlike limited partnerships in which only non-managing limited partners are granted limited liability, all partners in an LLP enjoy limited liability protection. The LLP as an entity is liable for partnership debts. As with other forms of partnership, LLPs are managed as set forth in the partnership agreement. LLPs are typically favoured by professional associations such as law firms, and accounting firms, and other businesses in which all investors wish to actively participate in management of the business. However, many jurisdictions restrict LLPs to professional associations.
There are many different types of limited partnership based on the business conducted and the size of the partnership. For example, public limited partnerships usually have a large number of partners and membership is offered to the general public. As a result, public limited partnerships are required to register with regulatory authorities. Alternatively, in some jurisdictions, private limited partnerships are statutorily proscribed from having more than a set number of limited partners. Blind pools are limited partnerships in which the investment opportunities the general partner will pursue are not specified. Venture capital limited partnerships are formed to invest in start-up businesses. Another partnership form is that of the master limited partnerships (MLP). MLPs are publicly traded limited partnerships which combine the tax benefits of limited partnership with the liquidity of publicly traded securities. Generally, statutes circumscribe the businesses which may use MLPs.