Choosing a business form can be difficult. It’s an important decision though, because different forms have different advantages and disadvantages, affecting everything from initial filing requirements to long-term tax implications. If a partnership is one of the forms you’re considering, understanding them will make your decision much easier.
One of the biggest advantages of a general partnership is its simplicity. As soon as two or more people begin conducting business together, attempting to make a profit, they have formed a partnership. Ohio doesn’t require any forms to be filed – it’s the type of business two people can begin running out of their basement with little hassle.
A general partnership allows the individuals to pool their resources and talents, making the whole greater than the parts. Each partner has authority to manage and make decisions equally, sharing in both the risk and the reward. However, this also leads to the greatest disadvantage of a general partnership – each partner is personally liable for the business. Their assets, including personal funds and real estate, can be taken to satisfy business debts, even if the debt was accrued due to the decisions or actions of another partner.
Limited liability partnership
As its name implies, selecting the business form of a limited liability partnership decreases the exposure of at least one partner. An LLP is made up of at least one general partner and at least one limited partner. Ohio Code Section 1782.08 requires a number of different forms to be filed with the Secretary of State before an LLP can conduct business, making the initial startup more onerous than with a general partnership.
A general partner will have the authority to manage the business and make decisions on a day-to-day basis. A limited partner, however, does not. Their authority is limited to their investment, but so too is their exposure. The business still gets the advantage of pooling the assets of multiple partners while the limited partner gains the advantage of being protected against personal losses that go beyond their investment.