Business Types FAQ
From LawDepot Law Library
What is a General Partnership?
A General Partnership is a form of business organization in which two or more individuals manage and operate the business with a view to making a profit. Each partner shares a fixed proportion of the partnership profits and losses and assumes unlimited personal liability for the debts and obligations of the company. One benefit of a general partnership is that partnership income is only taxed once since income flows through to the partners who are taxed individually.
What is a Limited Liability Partnership (LLP)?
Limited liability partnerships are generally restricted for use by professionals, such as accountants and lawyers, and function to limit the liability exposure of individual partners to acts of professional negligence committed by fellow partners or employees. Limited liability is granted to all partners in an LLP. Please note that our partnership agreement is intended for a general partnership and is not suitable for use by a limited liability partnership.
What is a Limited Partnership (LP)?
Limited partnerships consist of one or more general partners and one or more limited liability partners. A general partner actively manages the business and may contribute capital to the partnership. A general partner has unlimited liability for the debts and obligations of the business. A limited partner, however, contributes capital to the partnership but has no active role in running the business. The liability of a limited partner will only be the amount of capital they contributed to the partnership. Please note that our partnership agreement is intended for a general partnership and is not suitable for use by a limited partnership.
What is a Joint Venture?
A Joint Venture is a business arrangement where two or more individuals or entities work together for a single purpose and often for a limited time. It allows members to share development costs and resources to create synergies and become more competitive economically, but without becoming liable as general partners for the actions of fellow members. However, where the business relationships between the members of a joint venture become too close, and revenues are intermingled, the entity may resemble a partnership and will risk incurring the "joint and several" liability that is typical of a partnership. Although all members of a joint venture usually have a view to profit, they do not necessarily pool their profits and losses. Joint venture agreements are commonly used between a local and a foreign company to facilitate the entrance of a domestic business into a foreign market and vice versa.
What is a Sole Proprietorship?
A sole proprietorship is the simplest form of business entity. In a sole proprietorship there is only one owner (the sole proprietor) who operates in his or her personal capacity. The sole proprietor risks unlimited liability for the debts and obligations of their company. This means that all of the sole proprietor’s personal possessions are at risk if the business should fail or be sued. One benefit of a sole proprietorship is that it enjoys a single level of taxation. This means that the sole proprietor will pay personal income taxes for the profits made by the business.
What is a Corporation?
Under law, a corporation is considered to be a legal person distinct from the shareholders (or stockholders) who own it. This means that individual shareholders (or stockholders) are not personally liable for the debts and obligations of the corporation. If a corporation fails the shareholders (or stockholders) will only lose the assets they originally invested to purchase their shares (or stocks). In a corporation, income is taxed at two levels: first on income for the corporate entity, and then at the shareholder (or stockholder) level where shareholders (or stockholders) are taxed on any dividends they have received. You create a corporation by filing Articles of Incorporation with the business regulatory body in your jurisdiction. The document that governs internal business activities of the corporation are called 'Bylaws'. In most jurisdictions you do not have to file your bylaws.
What is a Limited Liability Company (LLC)? (USA Only)
A limited liability company (LLC) is a business entity that enjoys the more attractive features of both a partnership and a corporation. It is similar to a corporation in that the liability exposure of individual members is limited to what each has invested in the business. An LLC is similar to a partnership in that it is taxed at only one level. Like a partnership, income passes through and is taxed against individual members as personal income. The exact tax implications of an LLC will vary between jurisdictions. An LLC is managed by members or a management team. You create an LLC by filing Articles of Organization with the business regulatory body in your jurisdiction. The document that governs the business relationship between the owners (members) of the LLC is called the 'Operating Agreement'. In most jurisdictions you do not have to file your Operating Agreement.