Today business entity formation is often a daunting task for most of the entrepreneurs. It is essential for every business holder to develop a strategy – whether to run it individually i.e. sole proprietorship or opt for the partnership. Partnership is the association of one or more general partners who would conduct business for profit as co-owners. As compared to sole proprietorship, partnerships can prove better operational security.
Generally partnership can be of three types, Limited partnership, General partnership and Limited liability partnership. Let us explain the types here.
The major feature of partnership is that a limited partner enjoys limited liability as long as he or she does not participate in the control of the partnership business. Here the general partner remains liable for the debts and obligations of the entity. If the risk exposure is large a corporation can be developed to serve as the general partner. Since the ultimate liability for the debts and obligations rest with the shareholders, the corporate general partner can be protected from judgment creditor. If the judgment creditor manages a charging order against one partner, the order goes to the partner’s share not to the entire business.
This is worse than sole proprietorships in terms of asset protection. One partner’s wrongdoing can affect others too. Each partner is individually responsible for all obligations of the partnership.
Limited liability partnership:
It is a newly created concept that is very much similar to limited partnership with a little difference that it allows the members to take an active role in the business. It does not expose them to the personal liability for other’s activities, but include their extent of investment.
For starters, business formation and its maintenance is always a challenging job to perform. Proper business planning, execution and legal securities are the top most necessity that every businessperson want to ensure first.
Legal Information about new business formation in US is state specific. For Arizona business formation rules speak to a business lawyer from Arizona.