Q.When is an LLC or Limited Partnership better than a General Partnership?
A.A general partnership works well if all of the partners are devoting equal time, money, and resources to the partnership and when all of the partners are actively managing the business affairs of the partnership.
That said, a limited liability company (LLC) or limited partnership is more appropriate if:
- the partners are not devoting equal time and resources to the partnership; or
- the management of the partnership is being conducted by less than all the partners; or
- the partners seek limited liability protection from the partnership's debts and obligations.
Remember, with a general partnership there is no limited liability protection. Each partner will be jointly and severably liable for all the debts and obligations of the partnership, regardless of which partner actually incurred the debt. With an LLC, all of the members will enjoy limited liability protection so long as the LLC is properly formed and maintained.
In addition, when passive investors, or less active partners, are involved either an LLC or limited partnership should be formed.