Overview of Limited, General, and Joint Venture Partnerships
The following business structures are permitted in the United States: sole proprietorships, partnerships, legally recognized joint ventures, corporations, limited liability companies, trusts, and estates. There may be variations within these categories, and they will vary depending on the circumstances. The definitions and variations of limited, general, and joint venture partnerships are discussed here.
A partnership is, generally speaking, a commercial arrangement between two or more individuals who are referred to as partners. Partners have an interest in the company they are affiliated with. Depending on the purpose and aim of the firm, interests might change.
A partnership can be any sort of commercial arrangement involving two or more parties. Limited partnerships are specifically designated as falling within the umbrella of partnerships under business and tax law, and limited liability firms may also be categorized as partnerships. Along with various other forms of partnerships, general partnerships and joint venture partnerships can be formed.
In general, partnerships have the freedom to organize themselves whatever they see fit under their respective partnership agreements. A partnership agreement that thoroughly describes all of the company’s operating terms and operations typically governs each particular partnership. In all forms of partnerships, the phrases “general partner” and “limited partner” often allude to the parties’ respective levels of responsibility, with general partners committing their own personal assets and limited partners having lower levels of responsibility.
Taxation of Partnerships
Taxes are not paid by partnerships. IRS Form 1065, which lists a partnership’s revenue, costs, and profits, must be filed. Partnerships are also required to annually provide a Schedule K-1 to each partner, detailing each member’s individual taxable income for tax filing reasons.
Limited Partnership (LP)
A limited partnership must comply with business law by having both general and limited partners. Limited partners’ liability is restricted to the amount of money or property they invest, but general partners’ liability for all partnership obligations is limitless. Normally, general partners take on whole managerial responsibility for the organization. Limited partners often just want to see a return on their investment, however they may participate in management and advice. The partnership agreement specifies the particular duties and obligations of each partner.
General Partnership (GP)
A general partnership is a union of two or more individuals who share in the assets and obligations of a business. This might be a formal contractual agreement between partners or something more casual like a verbal agreement struck over coffee. Other than the need for the partners to submit Form 1065 and distribute Schedule K-1s, there aren’t necessary any special criteria for business structure or governance. The general partnership’s operating rules are fully up to the partners.
A general partnership is often set up with each member having unrestricted responsibility. In doing so, the partners’ private assets support the partnership’s solvency and liabilities.
Joint Venture (JV) Partnership
Joint ventures can serve a variety of functions. Depending on the parties’ agreement, joint ventures may or may not be partnerships. A joint venture must file a Form 1065 and report individual earnings via a Schedule K-1 for tax purposes if it is set up legally as a partnership.
Instead of using partnership designations, joint ventures might be more flexibly constituted through contractual agreements. To pool resources, operations, and activities for a particular objective, parties may engage into a legally binding joint venture agreement. The joint venture agreement will specify the particular terms that both parties agree to, if it is not set up as a partnership.
Other Types of Partnerships
A business may choose to structure its partnership in one of three ways: limited partnerships, general partnerships, or joint venture partnerships. Partnerships may be set up in a variety of ways overall. The following are some more types of partnership structures.
Limited Liability Company (LLC)
Members of limited liability firms are not held personally accountable for the obligations of the company. It is an option for limited liability businesses to become partnerships. Multi-member LLCs are really automatically regarded as partnerships. An LLC that has the status of a partnership is not subject to taxation but is still required to submit Schedule K-1 and Form 1065.
Limited Liability Partnership (LLP)
Limited liability partnerships are frequently designed to safeguard the assets of the participants. The partnership agreement that governs an LLP will apply. The majority of the time, an LLP is designed to limit personal asset responsibility to just partners responsible for particular activities, separating the responsibilities of the partners. This kind of partnership can guarantee that none of the partners are personally responsible for each other’s actions.
