Are you thinking of starting a new business? Have you already decided on the business structure? Do you know that you have two types of Partnership from which you can choose one?
This article provides you with details that will facilitate your decision.
WHAT IS PARTNERSHIP?
A partnership is a business structure in which two or more individuals own the business. Thus, a partnership business consists of two or more persons who agree to combine their resources to form a business. People who combine resources to start a business share risks, profits, and resources. Depending on the relationship between the business and the business owner, there are two types of partnership.
TYPES OF PARTNERSHIP
There are two types of partnerships: limited liability and General partnerships.
Limited Liability Partnership (LLP)
As the title suggests, a limited liability partnership denotes separation between the business and the owner. In this case, the personal assets are different from the business assets. Thus, an LLP is a body corporate and a legal entity separate from its owners/partners. Under the LLP arrangement, the Partnership is liable to the full extent of its assets, leaving the liability of Partners limited to the Partners’ agreed contribution to the Partnership.
Features of the LLP
The following are the features and characteristics of an LLP.
- An LLP contains elements of both ‘a corporate structure’ and ‘a partnership firm structure’ LLP is thus a hybrid between a company and a partnership.
- An LLP is characterized by organization and operations based on the agreement.
- An LLP provides flexibility without imposing detailed legal and procedural requirements
- An LLP enables professional/technical expertise and initiative that minimizes financial and business risks.
- Operating an LLP structure facilitates capacity that results in operational efficiency.
- The LLP can continue its existence irrespective of changes in partners. It can enter into contracts and hold property in its name.
- No partner is liable on account of the independent or unauthorized actions of other partners; thus, individual partners are shielded from joint liability that another partner may create through wrongful business decisions or misconduct.
- · Under LLP, it is the agreement between the partners or between the partners and the LLP, as the case may be, that governs the partners’ mutual rights and duties.
General Partnership also called traditional partnership firm is not a body corporate, hence, the partners are fully liable. Under a general partnership structure, partners can be personally responsible for debts incurred by the business.