A
business structure in which two or more persons share in the
ownership and
profits and
losses of the business. There are three main types of partnerships. In
general partnerships, two or more partners, jointly and severally, share all profits and losses, management authority, and
risk for the business. In a limited liability partnership, partners share profits and losses and divide management authority according to the company's specific structure. In case of liquidation, every partner is only liable for the amount he/she has invested in the company, much like a
stockholder in a
corporation.
Limited partnerships have elements of both the previous structures, having both
general partners and
limited partners. General partners in a limited partnership must share a certain amount of profit and financial liability with limited partners according to an arrangement between them. In this situation, general partners have all management authority and
unlimited liability, while a limited partner is only liable for his/her investment.
In most jurisdictions, partnerships are preferable to corporations because partnerships'
profits are not taxed prior to distribution to the partners. In other words, there is no equivalent to a
corporate tax on partnerships. On the other hand, partners have more legal and financial liability in case of
liquidation than would
shareholders and most management in a corporation.