Navigating the tricky waters of the business world is no easy feat. This statement can be especially true for first-time business owners hoping to understand the legal implications of what it means to establish a small business. Among one of three options, a partnership is a commonly used business organizational structure put into place by businesses with multiple partners looking to take advantage of its favorable tax treatment. Although in theory it is a fairly easy concept to understand, a closer look at the various types of partnerships can bring a sense of confusion for many business owners trying to decide on which partnership structure best suits their needs.
With partnership options consisting of General Partnerships, Limited Partnerships, Limited Liability Partnerships and Limited Liability Limited Partnerships, business owners have their work cut out for them in terms of research.
“Choosing from the four different types of partnerships can be difficult because aside from taking a look at the advantages and disadvantages of each type, it truly all comes to down to which structure suits your business best,” explained Bruce Brashear, Esq. “There is no ‘one size fits all’ partnership structure.”
The different partnership types can be seen as having evolved chronologically from one another, the first being a General Partnership where partners experience unlimited liability from any debts the business might incur and also share complete responsibility. From this point on comes the Limited Partnership structure, where some partners are limited partners who have no say in how the business is run but benefit from limited liability protection should anything happen to the business. Taking it one step further are Limited Liability Partnerships, where the general partners of the business experience personal asset liability protection, which they do not benefit from in previous models. The final partnership structure, Limited Liability Limited Partnership, brings with it the protection of limited liability in a limited partnership form.
“In the past 20 years, the law has expanded to include all of these different types of partnerships,” said Brashear, of Brashear and Associates, PL.
Brashear, who graduated in 1977 with his J.D. from the University of Tulsa School of Law, has over 30 years of legal experience when it comes to representing newly formed local businesses. The key to establishing a successful business and partnership according to Brashear? Get everything in writing. This specific piece of advice should resonate strongly with those looking to organize their businesses as partnerships, considering that one major implication of the General Partnership and Limited Partnership structures is the personal accountability that partners may experience for the misconduct of a single partner.
For Brashear, having everything in writing is something he is insistent upon as an attorney.
“It takes care of the guesswork when it comes down to who is responsible for what within the business,” he said.
Surprisingly enough, Brashear’s biggest advice in regards to forming a partnership is not to form one at all.
“In my opinion, the best kind of partnership is actually a Limited Liability Corporation,” he said. “It has all of the benefits you would receive from a Limited Liability Limited Partnership, and it’s more straightforward and flexible. Filing fees, in the state of Florida, are higher for a Limited Partnership than they are for a Limited Liability Corporation, making an LLC a better financial move.”
The Gainesville native said that if businesses are insistent on filing with the state as a partnership, it’s important they put in the structural work first.
“Small business partnerships, especially, can be likened to a romance,” Brashear said. “You’re sharing your passion with another person, and oftentimes as an owner, you can become swept up in every aspect of the business except the paperwork and it can come back to haunt you. The last thing you want to happen is have your business experience the unexpected and you be unprepared for it.”