Before you decide to start your own business, it’s important that you become knowledgeable about the different business partnerships that exist.
In the business world, there are four types your partnership that you can get into, and these are a traditional or general partnership, limited liability partnership, limited partnership, and company. We’ll discuss each of these types of partnership one by one so you can see the advantages and disadvantages of each. But before we start the discussion let’s first clear a few things out. If you plan to own a business by yourself and not have any partners, then you have what is called “sole proprietorship”. If you later decide to have a business partner or partners, then your sole proprietorship will then become a business partnership. Business partnerships are formed through a partnership agreement. Now onto the types of business partnerships.
1. Traditional or General partnership
This is a partnership you make with two or more people; it can between you and a friend or between you and twenty people. A general partnership is the most common and riskiest of different partnerships. You and your partners will be personally liable for all debts and loses, and if your company faces legal problems, then all members of the partnership will be held accountable. You will all share the responsibilities of the company such as day to day operations.
2. Limited Liability Partnership
In a limited liability partnership, you and your partners are separate from your company, meaning all losses will be directed to the company and not to you personally. Your amount of financial liability is limited to how much shares you have in the company. Let’s say you invest 10k in a textile company, and it goes bankrupt. The only money you will lose is your 10k investment, your house, your car and other assets will not be taken by the creditors.In a way, it gives flexibility to owners like you while allowing you to enjoy that come with a corporate body. In an LLP you are still involved in the everyday business operations.
3. Limited Partnership
Is a partnership wherein you have a general partner and a limited partner. The general partner is directly involved in the business’ operations while the limited partner merely invests in the enterprise. The general partner is personally accountable for the losses and debts incurred. The limited partner only experiences a financial loss on the amount he/she invested in the company.
The company you build is recognized by the state as an artificial person created by statute. It can last indefinitely since it’s just an embodiment of everyone who holds a share in the company. The debts and liabilities of the company remain in itself, and it does not hold the shareholders responsible for it. The money that you, as a shareholder will lose will depend on the amount you invest. A company can own assets, make contracts and engage in business using its name. Like a person a company can enforce its property rights and can sue or defend itself during legal proceedings. A company has two types you should be aware of: Private Limited Company – the number of people who can become shareholders is limited to just fifty or less. Public Company – the number of shareholders is fifty above, and if this is your choice, you can raise your capital by offering shares and debentures to the public.
No matter what type of business partnership you choose, the important thing is you are aware of who will be held liable and will not. Invest your money wisely, and make practical decisions you will soon see your hard earn cash become million dollar investments.