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General and Limited Partnerships

A general partnership can be formed by conduct with no paperwork and makes every partner personally liable; a limited partnership requires a filing and shields the partners who do not manage. What each is, and the LLP and LLLP variants.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

What it means

A general partnership exists whenever two or more people carry on a business as co-owners for profit - whether or not they meant to form one, signed anything, or filed anything. That default is the reason it is dangerous: each general partner is personally liable, jointly and severally, for the partnership's debts and for wrongs committed by other partners in the course of the business, and each partner is an agent who can bind the firm. A written partnership agreement controls almost everything between the partners - profit shares, management, admission and withdrawal - but does not change their liability to outsiders.

A limited partnership is different in kind. It exists only when a certificate is filed with the state, and it has two classes of partner: at least one general partner who manages and is fully liable, and limited partners who contribute capital, do not manage, and are liable only to the extent of their investment. Under older statutes a limited partner who took part in control risked losing the shield; the modern uniform act removed that rule in the states that adopted it. Limited partnerships remain common for investment funds, real estate and family holding structures, often with an LLC or corporation as the general partner so that no individual carries unlimited liability.

Most states also allow a general partnership to register as a limited liability partnership, which protects each partner from liability for the firm's obligations and for other partners' misconduct while leaving them liable for their own; it is the form most law and accounting firms use. A limited partnership can similarly register as a limited liability limited partnership to protect its general partner. Partnerships of every kind are taxed as pass-through entities by default.

Where this comes from

Partnership law is state law, largely uniform: the Uniform Partnership Act (1997), adopted in most states, provides at § 202 that the association of two or more persons to carry on as co-owners a business for profit forms a partnership whether or not the persons intend to form one, at § 306 that partners are jointly and severally liable for partnership obligations, and at §§ 1001-1003 for limited liability partnership registration. The Uniform Limited Partnership Act (2001), §§ 201 (certificate required) and 303 (a limited partner is not liable for the entity's obligations even if participating in management), governs limited partnerships in the states that adopted it; New York and some others retain earlier versions.

When people hire a lawyer for this

Two people running a business together without an entity should see a lawyer before anything goes wrong, because they are already general partners and already liable for each other. Anyone asked to become a limited partner should have the certificate, the partnership agreement and the identity of the general partner checked, since the shield depends on the filing having been made and on what the agreement lets the general partner do with the money.

Find a lawyer for this in your state

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

If you cannot afford a lawyer, civil legal aid programmes provide free help with many of these problems: civil legal aid programmes by state.

Related free reference tools: statute of limitations for a personal-injury claim, by state, quoted from each state's official text - part of LawyerLand's legal reference tools.