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How are general and limited partnerships different?

Here in California, two of the main types of business partnerships are general partnerships and limited partnerships.

One of the main ways these two partnership types differ has to do with liability. In a general partnership, all the partners are personally liable for the partnership's obligations.

However, in a limited partnership, there are actually two different types of partners, with the liability level varying between them. The first type of partner is a general partner, and this type of partner has the same liability regarding partnership obligations as they would if they were a partner in a general partnership. The other type of partner is a limited partner, and they generally enjoy limited liability. Most of the time, the only thing a limited partner could stand to lose in relation to partnership obligations is the capital contribution they made to the partnership. However, the amount of risk a limited partner could face can be set at different levels in the partnership agreement.

Also, generally, in a limited partnership, the general partners handle the management of the partnership, while limited partners do not. A limited partner could lose their liability protection if they play an active role in a partnership's management.

Thus, the decision of whether to form a limited or general partnership can have major implications on the future rights and responsibilities of the partners.

In a partnership agreement, partners can establish what type of partnership they will form and, if it is a limited partnership, who is a general partner and who is a limited partner. A partnership agreement can also set a variety of other terms regarding the different partners' rights and responsibilities.

When partnership disputes arise, what rights and responsibilities the different partners hold can be very impactful. Attorneys can help individuals who are in disputes with a business partner understand what rights and responsibilities they have and what effects these things have on their options in the dispute.

Sources: Governor's Office of Business and Economic Development, "General Partnership," Accessed Dec. 16, 2015

Governor's Office of Business and Economic Development, "Limited Partnership," Accessed Dec. 16, 2015

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