When clients visit the SBEC, a common topic that comes up as a starting point is the various types of business structures. Another layer can be added to this question when discussing partnerships and the different types of partnership business structures. In Canada there are three types of business partnership structures.
This post will identify the three types of partnership structures and their possible applications.
- General partnership:
This is the most basic partnership structure. In its most basic form it is two or more individuals (sole proprietor’s) doing business under one trade name. All partners share business liabilities and are able to distribute profits based on an agreement. The General partnership structure has the same strengths and weaknesses of a Sole Proprietorship, only it has more than one individual participating. Learn more about general partnerships.
- Limited partnership:
This partnership is a corporate structure rather than being a proprietorship structure. This structure has two parties involved in the business: 1) The general partner; 2) The limited partner.
- The general partner: This is the individual/group that will be operating the business on a daily basis and is responsible for all business activities and reporting of income and distribution thereof. The general partner carries the liability from operations.
- The limited partner: This is the individual or individuals who have invested in the partnership and have no direct input to the daily operations of the business. They hold partnership units that have a par value upon purchase. Limited partners are able to earn profits from business operations after all other debts are paid and carry no personal liability on business operations.
- Limited Liability Partnerships (LLP):
This is a relatively new business structure in Canada, but has been in existence in the United States for a few years now. This partnership is also a corporate structure where each partner carries their own individual limited liability as in a Corporation. Each individual corporation has limited liability in regard to the parent partnership which carries its own limited liability. Many legal practices utilize this structure when multiple partners are engaged.
This is a basic look at the partnership structures that are available. For an in depth comparison on the value each provides to individuals and operators, consulting with a credentialed professional is recommended.
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