Partnership

Partnership is a business structure in which two or more individuals agree to share ownership, profits, losses, and management responsibilities of an enterprise, with each partner contributing resources and bearing liability according to the partnership type (UPA 2013, §101)^[1]. Two friends decide to open a restaurant together. One brings culinary expertise; the other brings business acumen and capital. They agree to split profits equally and share decisions. They've formed a partnership—one of the oldest and simplest business structures, requiring no formal registration in its basic form.

Partnerships offer flexibility and simplicity but carry risks. In a general partnership, each partner bears unlimited personal liability for all business debts—if the restaurant fails with $500,000 in debts, both partners could lose personal assets. This exposure drove the development of limited partnerships and limited liability partnerships, which offer some protection. The choice among partnership types affects liability, taxes, control, and regulatory requirements.

Types of partnerships

Four main forms exist:

General partnership (GP)

Simplest form. No formal filing required—the partnership exists when partners begin operating together^[2].

Unlimited liability. Every partner is personally liable for all partnership debts and obligations. Creditors can pursue any partner for the full amount owed (joint and several liability).

Equal management. Unless otherwise agreed, all partners share equally in management decisions.

Limited partnership (LP)

Two partner classes. At least one general partner with unlimited liability and management authority; limited partners who invest but don't manage^[3].

Limited liability. Limited partners risk only their investment—personal assets are protected.

Common uses. Real estate ventures, film production, family estate planning.

Limited liability partnership (LLP)

Liability protection. All partners have limited liability—they're not responsible for other partners' negligence or misconduct^[4].

Professional services. All 50 states now permit LLPs, often limited to licensed professions—law firms, accounting firms, medical practices.

Limited liability limited partnership (LLLP)

Hybrid form. Combines LP structure with liability protection for general partners too.

Limited availability. Not recognized in all states.

Formation and governance

Creating and operating partnerships:

Partnership agreement

Written recommended. While oral agreements are valid, written agreements prevent disputes over:

• Capital contributions
• Profit and loss sharing
• Management authority and voting
• Withdrawal and dissolution procedures^[5]

Fiduciary duties

Duty of loyalty. Partners must act in the partnership's interest, not personal gain.

Duty of care. Partners must exercise reasonable care in partnership activities.

Good faith. Fair dealing required in all partnership matters.

Advantages

Partnerships offer benefits:

Simplicity. General partnerships form easily with minimal formality^[6].

Pass-through taxation. No entity-level tax. Profits pass through to partners' individual returns (Form 1065 filed for information only).

Combined resources. Partners contribute complementary skills, capital, and networks.

Flexibility. Partnership agreements can allocate rights and responsibilities as partners choose.

Disadvantages

Significant drawbacks exist:

Unlimited liability. In GPs, personal assets are exposed to business risks^[7].

Partner conflicts. Shared control invites disagreement. Without clear agreements, disputes can paralyze operations.

Difficulty transferring ownership. Partnership interests typically cannot be transferred without partner consent.

Automatic dissolution. Traditional rules dissolve partnerships when any partner leaves^[8].

Partnership — recommended articles

Sole proprietorship — Corporation — Limited liability company — Business law

References

• UPA (2013), Uniform Partnership Act, Uniform Law Commission.
• Ribstein L.E., Keatinge R.R. (2016), Ribstein and Keatinge on Limited Liability Companies, 2nd Edition, Thomson Reuters.
• Hamilton R.W., Macey J.R. (2014), Cases and Materials on Corporations, 12th Edition, West Academic.
• SBA (2024), Choose a Business Structure.

Footnotes

1. ↑ UPA (2013), Uniform Partnership Act, §101
2. ↑ Ribstein L.E., Keatinge R.R. (2016), Limited Liability Companies, pp.34-48
3. ↑ Hamilton R.W., Macey J.R. (2014), Cases and Materials, pp.89-104
4. ↑ SBA (2024), Choose a Business Structure
5. ↑ UPA (2013), Uniform Partnership Act, §§401-405
6. ↑ Ribstein L.E., Keatinge R.R. (2016), Limited Liability Companies, pp.156-172
7. ↑ Hamilton R.W., Macey J.R. (2014), Cases and Materials, pp.234-248
8. ↑ SBA (2024), Choose a Business Structure

Author: Sławomir Wawak