Partnership Types and Importance of Articles in Business Agreements

Partnership

Partnership refers to a legal agreement between two or more parties to run a business and split the profits. Partnership agreements come in various types and can be applied to various entities, such as governments, non-profit organizations, for-profit companies, and private individuals.

Types of Partnerships

There are three primary types of partnerships when referring to a for-profit endeavor carried out by two or more people:

1. General Partnerships: All partners in a general partnership are equally liable financially and legally. The debts that the partnership incurs are personally liable to the individuals. Equal shares are given to profits.

2. Limited Partnerships: In a limited partnership, there are general partners and limited partners. General partners are responsible for running the partnership and are fully liable for the partnership's debt and obligations. Limited partners have limited liability and contribute only to the partnership, gaining the right to share in the profits. They typically do not have any say in the management of the partnership.

3. Limited Liability Partnerships: Limited liability partnerships offer protection against personal liability related to the mistakes, negligence, or wrongdoings of other partners. Each partner is personally responsible for their own actions but not for those of others within the partnership.

Importance of Articles of Partnership

Articles of partnership are not legally required but are considered a best business practice. They define the conditions of the partnership and specify how the assets of the partnership are to be divided, thereby playing a significant role in preventing and resolving disputes between partners. These documents should specify the individual tasks and related responsibilities of each partner, such as who is in charge of specific important tasks like managing inventories and keeping track of revenues and expenditures.

Learn about different types of partnerships in business agreements, including general partnerships, limited partnerships, and limited liability partnerships. Discover the importance of having articles of partnership to define conditions, asset division, and responsibilities among partners.