- General partnerships are perhaps the oldest business entity known. Two or more people got together and formed a company, making all decisions as a team and splitting any profits evenly. In the modern world, a general partnership works in much the same way. Each partner has an equal amount of influence over the day-to-day operations of the partnership, and each partner shares equally in the profits and liabilities of the partnership. Unfortunately, in a general partnership, each partner can also be held liable for any liabilities incurred by any other general partner, either within or outside the partnership.
- Limited partnerships were created to address the unlimited liability aspect of general partnerships. Especially popular during the oil and gas boom of the 1980s, limited partnerships are made up of one or more general partners (but usually one) who handle the day-to-day operations of the partnership and a group of limited partners who have no say over how the partnership is run but share in any profits generated by the partnership. The limited partners are also afforded protection from the liabilities of the partnership or any other partner.
- General partnerships are designated by the initials GP, following the name of the partnership. Limited partnerships are designated by the initials LP, following the name of the partnership. Most limited partnerships are found in the film industry and will be recognized with production credits in a given film.
- General partnerships are unpopular for a reason. The unlimited liability they expose their partners to make general partnerships a risky proposition. Far better business entities are available to achieve the same purpose without the unlimited downside risk. The Limited Liability Partnership, for example, allows all of the partners to have the same power as general partners, without the unlimited exposure.
- Limited Liability Partnerships and Limited Liability Companies are more appropriate business entities for the vast majority of partnerships than general partnerships and limited partnerships. They offer more protection and the benefit of pass-through income, thus avoiding the double taxation inherent in corporations.
