A business partnership refers to a legal relationship between two or more parties formalized by a written document. These parties can be individuals, businesses, or any organization. In a business partnership, the parties agree to share in the ownership and operation of the business. They also benefit from profits resulting from the business.
How is a business partnership started?
Business partnerships typically begin with a verbal agreement. In this stage, potential business partners agree to form a new business or share an existing one. The agreement is confirmed with a written document that stipulates all the details concerning the business partnership. This written document is signed by all parties. The business must usually be registered in all the states where it conducts or will conduct business. However, the requirement to register and the type of business partnership may be different from state to state.
What are the different types of business partnerships?
Before establishing a business partnership, all parties must decide what kind of business partnership they want. Generally, there are three types:
General Partnership (GP): In this kind of business partnership, all business partners agree to be general partners. Meaning, they are all equally involved in the operation of the business. As general partners, they agree to share liability for debts and lawsuits.
Limited Partnership (LP): In a limited partnership, one or more general partners manage the business and are liable for it. One or more are limited partners who do not participate in operating the business and who do not have liability. They are often called silent partners or silent investors.
Limited Liability Partnership (LLP): In a limited liability partnership, all partners are shielded from liability. This kind of partnership is commonly formed by those who are in the same profession like in medical clinics and law firms where the individual liability is not shared by all partners.
Is a business partner the same as a shareholder?
A business partner and a shareholder are different. A business partner’s ownership of a company is based on the agreement with other business partners. Being a business partner usually involves some control or influence on business operations, depending on what type of business partner they are. Business partners can be general partners or silent partners.
On the other hand, a shareholder is an investor in a publicly traded business or corporation. They purchase a certain number of shares of stock. This stock represents the portion of ownership that they have of the business. A shareholder’s influence on the business depends on how many shares they own. Shareholders are not liable for the actions of the business.
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