Partnership/Joint Venture
A partnership or joint venture is a business enterprise in which two or more “individuals” (or entities) participate for profit. Individuals can be deemed to be in a partnership even if they have not entered into a formal partnership agreement. Without a partnership agreement, state laws will govern the rights and responsibilities of partners, such as requiring each partner to equally share the profits of the business. A joint venture is a type of temporary partnership that is organized to carry out a particular business enterprise.
PROS:
You are not formally required to register a partnership with the state, although it is recommended.
There is no double taxation applicable to the partnership. Partnerships are pass-through entities, which means that each partner is taxed at their individual tax rate for their share of the profits earned in the business, under their individual name and Social Security number. Although there is no business entity tax, the partnership is considered an entity separate from each partner, and the partnership should file an informational federal return (IRS Form 1065). K-1 forms should be sent to each partner, representing their share of profits.
All partners can act on behalf of the partnership, and they are not required to conduct or maintain corporate formalities.
CONS:
There is no limitation of personal liability for the partners in a partnership. If someone sues the business and wins, they can attach a judgment against the personal assets of each partner (e.g. their personal bank accounts, vehicles, real estate, etc.).
Partners are financial liable for the actions of their partners. If, for example, someone sues the partnership for the conduct of one of the partners, the other partner’s assets can be attached to satisfy a judgment.
All partners can act on behalf of the partnership.
Limited Partnership (LP)
A limited partnership is an entity formed under state law by two or more “individuals” associated for the purpose of conducting a business for profit. The LP consists of one or more limited partners and at least one general partner. General partners can be corporations to further limit personal liability.
PROS:
The personal liability of limited partners is limited to their contribution of capital in the LP.
There is no double taxation applicable to LPs. LPs are pass-through entities, which means that each limited or general partner is taxed at their individual tax rate for their share of the profits earned in the business, under their individual name and Social Security number. There is no business entity level tax, but the LP should file an informational federal return, and K-1 forms should be sent to each limited and general partner representing their share of profits.
The corporate formalities are not mandatory to conduct or maintain.
CONS:
There is no limitation of personal liability for the general partners of the LP. If someone sues the business and wins, they can attach a judgment against the personal assets of the general partner(s), including their personal bank accounts, vehicles, and real estate.
General partners are financial liable for the actions of their partners, which means that someone can sue the partnership for the conduct of one of the partners, and judgments can attach to the assets of any of the other partners.
Limited partners cannot participate in the management of the LP.