A partnership is a type of privately held business structure that involves two or more unique owners. There are several different types of partnerships, each designed for a different business function. These forms are designed to either reduce costs and constraints, reduce taxes or reduce liability.
A general partnership (GP) is a type of partnership where all owners, known as partners, share equal management and ownership rights and duties for the business. GP partners share all the profits equally. However, GP owners also assume full tax, debt and legal liability for the business. For example, the partners may be personally sued for negligence, defect or mismanagement on the part of the business. If the business defaults on a debt, the partners are legally liable and must pay. Also, tax liability for the business' profits falls on the partners: the business is not taxed, but the partners must report income from the business on their tax returns as personal income and pay taxes accordingly.
Unlike a GP, which is a 50 / 50 partnership, a limited partnership (LP) consists of one or more main owners, known as "general partners," and at least one "limited partner," which is a partner that has a lesser stake in the business. According to FindLaw, the general partner takes on the full legal and tax liability for the business, while the limited partner's liability is kept to the amount of her investment. The general partner controls and manages the business, while a limited partner has no control. However, both the general and limited partner share in the profits, and accordingly, in the tax liability. The tax structure is the same as a GP.
A limited liability partnership (LLP) is governed and taxed identically to a GP. The primary difference is in the scope of liability: the partners of an LLP are not personally responsible for their partners' negligent or wrongful acts, or for any debts or lawsuits the business may incur. An LLP may also be structured as a limited liability limited partnership (LLLP) which is identical to a limited partnership except for the aforementioned liability considerations. Tax laws for LLPs and LLLPs vary between states.