Starting a new business partnership is an exciting endeavor – one filled with hope and high expectations, but also fraught with challenges and pitfalls for the unwary. An experienced New York business attorney at Hiller, PC can guide you and your future partner(s) through the partnership formation process to ensure you start your business off on the right foot.
Types of Partnerships
When two or more people decide to go into business together, for profit, they have formed a partnership in the eyes of the law. This is so even without a formal agreement or any intent to form a partnership. However, it is always a smart idea, before you join forces with a business partner, to know your legal options and understand your rights and responsibilities.
Broadly speaking, there are two types of partnerships: general partnerships and limited partnerships. Each has its own distinct characteristics.
A general partnership is one in which all the partners share ownership, authority and liability. All partners play some role in the day-to-day management of the business. Any one partner can act on behalf of the partnership and bind the partnership to a contract or other obligation. Because all partners share in the management of the partnership, all partners are personally liable for all the partnership’s business debts and obligations. Thus, for example, if the partnership can’t make rent or pay a supplier, those creditors may seek payment from you personally – as a general partner – by coming after your personal assets (e.g., your home, your car, your boat, etc.).
A limited partnership is a partnership made up of a general partner (or partners) and one or more limited partners. The general partners have the same rights and responsibilities as in a general partnership. The limited partners, however, do not take an active role in the management of the business. Generally, limited partners are passive investors, who participate in the partnership by contributing capital to the business. Because limited partners give up management power, their personal liability is limited to the amount of their investment. Thus, for example, if you join a partnership as a limited partner, your capital investment can be used to pay partnership debts, but creditors cannot seek more from you. Your personal assets are off-limits.
Getting Your Ducks in a Row
Regardless of the type of partnership you choose, you will need to make decisions and take action at the outset to ensure your interests are protected. Your New York business attorney will discuss with you issues related to: