3 types of California business partnerships to consider

On Behalf of | Mar 4, 2022 | business formation | 0 comments

When two or more people opt to start a business venture, they often consider structuring as a partnership. If they ultimately decide a partnership is the right entity after evaluating the pros and cons, they’ll need to decide the type of partnership to form.

Understanding the different types may help individuals choose the partnership structure that best suits their business needs and goals.

General partnership

According to the California Franchise Tax Board, forming a general partnership requires two or more general partners. These co-owners will equally share the ability to control and manage the business. Additionally, they both can make binding business decisions as well as equally share liability for the business debts. 

Limited partnership

Limited partnerships include at least one general partner and one or more limited partners. The general partners in businesses structured as a limited partnership have the same rights and responsibilities as those in a general partnership.

Limited partners, on the other hand, are merely passive investors; they cannot manage these business entities or remove their original contributions provided to the business upon its inception. They do, however, share liability for the business debts, but only up to the amount they contributed.

Limited liability partnership

In California, some individuals opt for a limited liability partnership as their business structure. Partnerships that engage in the practice of law, architecture, engineering, land surveying or public accountancy often select this formation option. This entity structure provides professional partners with some liability protection. It also requires that such businesses maintain insurance coverage as specified by the state.

The entity new business owners choose to structure often affects all aspects of their company – from filing taxes to day-to-day operations. Those with questions relating to specific circumstances are advised to see the guidance of a business law professional.