General partner

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General partner is a person who joins with at least one other person to form a business. A general partner has responsibility for the actions of the business, can legally bind the business and is personally liable for all the partnership's debts and obligations. [1]

Contents

Role of a general partner

A general partner acts on behalf of a business, and generally has the power to make decisions with or without the permission of the other partners. Due to their managerial role general partners have unlimited liability, which means that a partnership's genera partners are personally responsible for all business debts, [1] meaning that the personal assets of general partners are at potential risk for the debts of the partnership. [2]

In the event that a partnership is dissolved, general partners are subject to liquidation, [1] such that their share of the assets of the partnership may be distributed to claimants such as creditors before the partner receives any remaining share. [3]

General partner v. limited partner

Unlike general partners, limited partners enjoy limited liability, meaning that limited partners are not personally liable for the debts and obligations of the partnership and their personal assets cannot be reached to satisfy business debts. [4] General partners have unlimited personal liability for business debts. [5]

The protection against liability enjoyed by limited partners comes at the cost of management power. General partners are actively involved with management of the partnership, while limited partners do not have any management power or decision-making authority for the partnership. [6] Limited partners may have a role in the business, outside of the scope of making or influencing business management or operations.

General partners are able to make decisions that are fully and legally binding to the partnership, but limited partners do not have that authority. [6] Taxation is also different between limited and general partners.

Worldwide

France

Article 1832 of the Civil Code in France, describes a partnership under the French Commercial Code. Just like the United States, a general partnership consists of general partners, who are personally liable for all of the business debts and claims. Furthermore, taxation is based on individual partners, rather than the partnership being taxed through income or corporate tax. Partnerships in France are also considered as separate legal personalities. [7]

India

The Indian Partnership Act of 1932, was a law that described partnerships based in India, which was the relationship between individuals who have decided to share profits of a business. An interesting note about partnerships in India, is the fact that status does not relate to a formation of partnerships. In order to have a partnership that is recognized, the people who are engaged must enter a formal contract. [8] Furthermore, partners who engage in a general partnership, are also called general partners, who have unlimited liability. [8]

Japan

In Japan, general partnerships are called Kumiai. They are made up of general partners, whom have unlimited liability, like in the United States, meaning general partners are fully responsible for any and all business debts and claims. This was founded under Civil Code Act No. 89 of 1896, in which it describes general partnerships as an engagement between partners who decide to jointly run a business. [9] Although no formal proceedings are necessary to enter a partnership agreement, general partners are taxed with a "pass-through" taxation. Japan does not consider general partnerships as separate legal entities. [9]

United Kingdom

The Partnership Act 1890, which was an act of Parliament of the United Kingdom, governing the rights and duties of people and corporate entities conducting a partnership, was the first law allowing for partnerships. In the United Kingdom, general partners within a general partnership are personally liable for any and all business debts and claims. [10] Business profits and losses are shared between all partners and each partner would be taxed individually on their share, which is similar to the "pass-through" taxation. [10]

Scotland

Unlike the rest of the United Kingdom, in Scotland general partnerships are considered separate legal personalities, meaning a general partnership entity is able to do things such as, own assets in its own name, borrow money and grant security of assets that are within its own name and, bring issues to court in its own name. [11]

United States

In the United States, general partners enjoy pass-through taxation, which allows business profits and losses to be passed through to its owners instead of being taxable to the business entity itself. Limited partners do not have to pay self-employment taxes on profits that they receive from the partnership due to the fact that they are not considered as active members of the company, while general partners pay self-employment taxes on their share of profits. [12]

There are four types of partnerships, the general partnership, the limited partnership, the limited liability partnership, and the limited liability limited partnership. [13] Three varieties of partnership, the general partnership, limited partnership, and limited liability limited partnership, require that a general partner or general partners be designated upon formation.[ citation needed ]

Related Research Articles

Business is the practice of making one's living or making money by producing or buying and selling products. It is also "any activity or enterprise entered into for profit."

<span class="mw-page-title-main">Partnership</span> Arrangement in which parties agree to cooperate to advance their mutual interests

A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

<span class="mw-page-title-main">Limited liability company</span> US form of a private limited company

A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that can combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. An LLC is not a corporation under the laws of every state; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs are well known for the flexibility that they provide to business owners; depending on the situation, an LLC may elect to use corporate tax rules instead of being treated as a partnership, and, under certain circumstances, LLCs may be organized as not-for-profit. In certain U.S. states, businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a similar entity called a professional limited liability company (PLLC).

<span class="mw-page-title-main">Joint-stock company</span> Business entity owned by shareholders

A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.

<span class="mw-page-title-main">Incorporation (business)</span> Legal process to create a new corporation

Incorporation is the formation of a new corporation. The corporation may be a business, a nonprofit organization, sports club, or a local government of a new city or town.

<span class="mw-page-title-main">Limited liability partnership</span> Partnership in which some or all partners have limited liabilities

A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore can exhibit aspects of both partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence. This distinguishes an LLP from a traditional partnership under the UK Partnership Act 1890, in which each partner has joint liability. In an LLP, some or all partners have a form of limited liability similar to that of the shareholders of a corporation. Depending on the jurisdiction, however, the limited liability may extend only to the negligence or misconduct of the other partners, and the partners may be personally liable for other liabilities of the firm or partners.

<span class="mw-page-title-main">Sole proprietorship</span> Business legally synonymous with its owner

A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by only one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work alone and may employ other people.

<span class="mw-page-title-main">Private limited company</span> Type of company used in many jurisdictions

A private limited company is any type of business entity in "private" ownership used in many jurisdictions, in contrast to a publicly listed company, with some differences from country to country. Examples include the LLC in the United States, private company limited by shares in the United Kingdom, GmbH in Germany and Austria, Besloten vennootschap in The Netherlands, société à responsabilité limitée in France, and sociedad de responsabilidad limitada in the Spanish-speaking world. The benefit of having a private limited company is that there is limited liability.

<span class="mw-page-title-main">Limited liability</span> Business structure where shareholders cannot owe more than their stake in a venture

Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or joint venture. If a company that provides limited liability to its investors is sued, then the claimants are generally entitled to collect only against the assets of the company, not the assets of its shareholders or other investors. A shareholder in a corporation or limited liability company is not personally liable for any of the debts of the company, other than for the amount already invested in the company and for any unpaid amount on the shares in the company, if any, except under special and rare circumstances permitting "piercing the corporate veil." The same is true for the members of a limited liability partnership and the limited partners in a limited partnership. By contrast, sole proprietors and partners in general partnerships are each liable for all the debts of the business.

A privately held company is a company whose shares and related rights or obligations are not offered for public subscription or publicly negotiated in their respective listed markets. Instead, the company's stock is offered, owned, traded or exchanged privately, also known as 'over-the-counter'. Related terms are unlisted company, unquoted company and private equity.

<span class="mw-page-title-main">Limited partnership</span> Form of partnership

A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.

The rules governing partnership taxation, for purposes of the U.S. Federal income tax, are codified according to Subchapter K of Chapter 1 of the U.S. Internal Revenue Code. Partnerships are "flow-through" entities. Flow-through taxation means that the entity does not pay taxes on its income. Instead, the owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners. Federal tax law permits the owners of the entity to agree how the income of the entity will be allocated among them, but requires that this allocation reflect the economic reality of their business arrangement, as tested under complicated rules.

<span class="mw-page-title-main">General partnership</span> Basic form of partnership under common law

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<i>Kommanditgesellschaft</i> German name for a limited partnership business entity

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<span class="mw-page-title-main">Limited liability limited partnership</span> Business entity in U.S. commercial law

The limited liability limited partnership (LLLP) is a relatively new modification of the limited partnership. The LLLP form of business entity is recognized under United States commercial law. An LLLP is a limited partnership, and it consists of one or more general partners who are liable for the obligations of the entity, as well as or more protected-liability limited partners. Typically, general partners manage the LLLP, while the limited partners' interest is purely financial. Thus, the most common use of limited partnership is for purposes of investment.

There are many ways in which a business may be owned under the legal system of England and Wales.

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<span class="mw-page-title-main">Low-profit limited liability company</span> Legal form of business entity in the US

A low-profit limited liability company (L3C) is a legal form of business entity in the United States. Commonly referred to as a hybrid structure, it has characteristics of both for-profit and non-profit entities. L3Cs were created to comply with the Internal Revenue Service (IRS) program-related investments (PRIs) rules which allow most typically private foundations the ability to maintain tax-exempt status through investments in qualifying businesses and/or charities. With a social mission as the primary objective and a secondary objective of profit generation, the L3C legal form is considered a viable option for businesses seeking a reputation or marketability for being a social enterprise.

United Kingdom partnership law concerns the way that partnerships are formed or governed within the United Kingdom. Depending upon where the partnership was formed, English law, Scots law or Northern Irish law may apply in addition to statutes that create a framework across the UK. Under Scots law a partnership is a distinct legal entity and can borrow money from a bank in the name of the partnership, while English law only allows borrowing in the names of individual partners. Partnerships are a form of business association, which arises automatically when people carry on business with a view to a profit. Partners are jointly and severally liable, just as they own the property in common.

References

  1. 1 2 3 Balouziyeh, John M. B. (2013). "Partnerships". A Legal Guide to United States Business Organizations. pp. 33–44. doi:10.1007/978-3-642-37907-9_5. ISBN   978-3-642-37906-2.
  2. ↑ Müller, Michael (2011). Personal Liability in a Partnership A Comparative Analysis of U.S. and German law (1. Auflage, digitale Originalausgabe ed.). München: GRIN Verlag. ISBN   9783656021285.
  3. ↑ McLachlan, James A. (1960). "Partnership Bankruptcy". Commercial Law Journal. 65: 253.
  4. ↑ Fu, Peggy H. (2001). "Developing Venture Capital Laws in China: Lessons Learned from the United States, Germany, and Japan". Loyola of Los Angeles International and Comparative Law Review. 23: 487.
  5. ↑ Frazier, Shannon S. (2020). Limited liability company & partnership answer book (Fourth ed.). New York: Wolters Kluwer. pp. 6–140. ISBN   9781543813579.
  6. 1 2 Marquee, Team (15 December 2021). "Limited Partner vs General Partner". The Marquee Blog. Retrieved 2021-12-15.
  7. ↑ Derouin, Philippe Derouin-Philippe (2019-09-27). "Regulation of partnerships in France". Lexology. Retrieved 2021-12-18.
  8. 1 2 "Tax Laws & Rules > Acts > Indian Partnership Act, 1932". Income Tax Department. Retrieved 2021-12-17.
  9. 1 2 "Establishing a business in Japan". Practical Law. Retrieved 2021-12-18.
  10. 1 2 "What is a general partnership?". Inform Direct. 2017-08-24. Retrieved 2021-12-15.
  11. ↑ "Establishing a business in the UK (Scotland)". Practical Law. Retrieved 2021-12-18.
  12. ↑ Fishman, Robert G. (1996). "Self-Employment Tax, Family Limited Partnerships and the Partnership Anti-Abuse Regulations". Taxes. 74: 689.
  13. ↑ Smirniotopoulos, Peter (2017). Real estate law : fundamentals for the development process. London: Routledge. p. 290. ISBN   9781317650164.
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