When two or more people or business entities enter into a new business relationship in which profits and losses are shared, a partnership is created (unless a more formal corporate filing is completed with the state.) A general partnership is the customary arrangement wherein the partners share management responsibilities. A written partnership agreement is necessary, but no filings are required with the Secretary of State. Management is centralized, flexible, and informal. In the arrangement, partners are personally liable for all business debt, so a good insurance policy is recommended.

           Another option which provides some liability protection is a limited partnership designated with “L.P.” or “Ltd.” after the business name. In this choice of business entity, management is not shared. Partners are designated as either a “general partner” or “limited partner.” General partners make all the business decisions and are liable for business debts. Limited partners have no management authority, but their losses are restricted to their investments. To create a limited partnership, a written agreement is needed, then, a Certificate must be filed with the Secretary of State at a cost of $750. Thereafter, the Certificate must be renewed every 4 years.

           Limited liability partnerships (L.L.P.) are also available for professional partners who maintain at least $100,000 in insurance or savings. This type of partnership requires a Certificate to be filed with the Secretary of State, with a fee of $200 per partner per year.

           All types of partnerships must file a federal tax return, but the business does not pay income tax; instead, all tax liabilities pass through to the partners. At this time, partnerships do not pay the state franchise tax. Individual partners may, however, have to pay self-employment taxes.

           For more information on the best choice of business entity to serve your needs, you should consult with an attorney of your choice.