Types of Partnership Business

Types of Partnership Business

There are four types of partnership, on the basis of liability of partners

1. General partnership: This is a partnership in which all owners share in operating the business and in assuming liability for the business’ debts.

2. Limited partnership: This is a partnership with one or more general partners and one or more limited partners. Limited partnership is one in which certain partners are liable only for the amount of their investment. This is a special kind of partnership governed by partnership Act of 1907. The purpose of a limited partnership is to allow one or more individuals to provide capital on which a return is expected. In case of liquidation, the limited partners only lose the capital.

3. Master Limited Partnerships (MLP): This is a newer form of partnerships which looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation but it is taxed like a partnerships and thus avoids the corporate income tax.

4. Limited Liability Partnerships (LLP): LLP limited partners risk losing their personal assets to only their own acts and omissions of people under their supervision. This newer type of partnership was created to limit the disadvantage of unlimited liability.

Types of partners on the basis of the involvement in partnership

An entrepreneur interested in being involved in partnerships form of business should endeavor to understand the types of partners that he/she can choose to be in this form of business.

Partners may be classified on the basis of liability, degree of management participation in management share in the profit and so on. The following types of partners are organized

1) General partner: A general partner is an owner (partner) who has unlimited liability and is active in managing the firm.

2) Limited partner: A limited partner is an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment.

3) Silent partners: These are partners who are known by the public as owners of the business, but they may take no active role in marketing the business.

4) Secret partners: These are partners who take active role in the management of the company but they are unknown to the outsiders as partners.

5) Sleeping partners: These are also known as dormant partners, they are neither known as partners by the public nor do they participate in managing the company. They only share from the profit /loss of the business to the tune of capital contributed.

6) Nominal partners: These kinds of partners are publicly known that they are partners although they have no investment in the business and therefore have no rights of management. They merely lend their names to the enterprise and may be liable for certain debt of the partnerships.