Partnership

There are 3 main types of partnerships.

General partnership

In a general partnership, all partners are responsible for managing the business. Each partner has unlimited liability for any debts and obligations the partnership incurs.

This is the most common type of partnership.

Limited partnership

A limited partnership has at least one general partner and at least one limited partner.

General partners manage the business and have unlimited liability for any debts the partnership incurs.

Limited partners are passive investors who don’t manage the day-to-day business. Their liability is limited to the amount they contributed to the partnership.

You must register a limited partnership with your state or territory government.

Incorporated limited partnership (ILP)

An ILP is a special type of limited partnership used for venture capital investments.

You must register an ILP with your state or territory government.

Each state and territory has its own partnership laws.

This is a written agreement between all the partners in a partnership. It outlines the partners’ roles, responsibilities, financial contributions and how they’ll run the business.

You don’t have to make a partnership agreement. But having one sets clear expectations and helps avoid disputes between partners.

It’s a good idea to ask a lawyer to review your partnership agreement.

Things to include in a partnership agreement

• Business and partner details – Make sure you include the partnership start date and the purpose of your business.
• Ownership and contributions – How much will each partner contribute? What percentage of the business does each partner own?
• Profit and loss sharing – How will you split profit and losses between partners? Is it proportional to their ownership share?
• Roles and responsibilities – What does each partner do in the business?
• Intellectual property (IP) – Who owns any pre-existing IP? What about IP created during the partnership?
• Making decisions – Who can make decisions? What’s your process for joint decisions? Do you need unanimous agreement for major decisions?
• Dispute resolution – Outline the process to follow if partners have a major disagreement. Include what you’ll do if the process fails.
• Adding or removing partners – Include rules for admitting new partners and what happens if a partner leaves the business or dies.
• Ending the partnership – When and how will you wind up the partnership? How will you divide up the remaining assets?