When you’re looking to set up a business with one or more people, a partnership is one of your options in business structures. You would typically pay taxes as individual income, and you would share liability with your partners for the business. There are several types of partnerships in California to know about before settling on your business structure.
You need at least one other person to set up a limited partnership, but they don’t need to have heavy involvement in the business. Limited partners typically don’t participate in managing the business or making important decisions. General partners are the leaders of the LP. Due to the difference in control, limited partners are only liable up to what they invest in the business. General partners, however, hold more liability for legal issues and debts because they control operations.
Family limited partnership
A family limited partnership is the same as an LP, but all partners of the business have to be family. It’s a strategy that some use to pass on wealth in their family. You may find that a family limited partnership would reduce your estate taxes.
Limited liability partnership
A limited liability partnership is an option for accountants, architects, engineers, land surveyors and lawyers. This type of business structure removes personal accountability for lawsuits and debts.
Business law dictates that all partners in a general partnership are equally liable. You need at least two people, including yourself, to set up a GP. California taxes each partner based on personal income laws.
What type of business structure you choose is important because it affects how you pay taxes and how much liability you’re taking on. Some types of businesses may offer tax benefits for your needs as well.