Limited Vs. General Partnership Risk
When setting up a new business entity, you have to consider the different risks that are involved with each type. When partnering with other individuals on your business, you may consider a general partnership or a limited partnership. Both options carry with them some risk for partners, but the general partnership provides all partners with more risks.
Other People Are Reading
-
General Partnership
-
A general partnership is the most basic form of partnership available. With this type of partnership, every partner in the business has the same rights and liabilities as every other partner. This is true regardless of how much each partner puts into the business. One partner could invest a small amount of money and still be equally as liable for problems as someone who invested much more. This is a very easy type of partnership to set up for a new business.
Limited Partnership
-
A limited partnership is a different type of partnership agreement that you can use to set up a business. With this type of partnership agreement, there will be a general partner and several limited partners. In some cases, a limited partnership might also have more than one general partner. With this type of arrangement, the general partner is in charge of the day-to-day operations of the business and the limited partners only provide investment capital and limited help to the business.
-
Risk
-
With these two different types of partnerships, you get varying degrees of risk. With a general partnership, everyone is liable for the actions of the business as a whole. With a limited partnership, the limited partners are only liable up to the amount of money that they have invested in the business. General partners in the limited partnership still have unlimited liability when it comes to paying for claims related to the business as a whole.
Considerations
-
When setting up a business partnership, you may want to think about what role you would like to play in the business. If you enjoy doing activities that are related to the day-to-day management of a business, you should consider being a general partner. If you only want to make money off of your investment, taking a limited partnership role might be to your advantage. You have to think about how much risk you want to take on in relation to the amount of reward that you can get.
-
