Partnership simply explained – Forming a partnership is a popular way for entrepreneurs in the US to run their business together. Let’s take a look at the different types of partnerships (General Partnership, Limited Partnership and Limited Liability Partnership), their formation, advantages, disadvantages and of course tax. Setting up a US company? Learn more about the US legal forms here.
There are three main types of partnerships in the USA: General Partnerships (GP), Limited Partnerships (LP) and Limited Liability Partnerships (LLP). Each form has its own legal and tax implications.
A general partnership is a partnership in which all partners have equal rights and actively participate in the management of the company. This means that all partners have both control and liability for the partnership’s debts.
Establishment of a general partnership
The formation of a general partnership does not usually require formal registration, but it is advisable to draw up a partnership agreement that sets out the rights and obligations of the partners.
Advantages of a general partnership
Simplicity of foundation and administration
Direct taxation of profits
Flexibility in profit distribution
Disadvantages of a general partnership
Unlimited personal liability
Conflicts between partners
Difficulties in raising capital
Limited Partnership (LP)
A limited partnership consists of at least one general partner and one or more limited partners. General partners manage the company and bear full liability, while limited partners are only liable up to the amount of their contribution.
Formation of a limited partnership
The formation of a limited partnership requires the submission of formation documents to the competent state office and the preparation of a partnership agreement.
Advantages of a Limited Partnership
Limitation of liability for limited partners
Opportunity to raise capital from investors
Tax advantages through pass-through taxation
Disadvantages of a Limited Partnership
Unlimited liability for general partners
Complexity in administration
Limited control of the limited partners
My recommendation for the first 10 properties
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
US-Firmengründung speziell für Tax-Lien-Investoren
US-Firmengründung speziell für Tax-Lien-Investoren. Dieses exklusive Paket wurde speziell für deutschsprachige Tax-Lien-Investoren entwickelt und enthält alles Wichtige, was ein Investor benötigt, um seine Tax-Lien-Investments erfolgreich umzusetzen:
A limited liability partnership is a partnership that offers the partners limited liability. All partners are protected from personal liability resulting from the actions of other partners or the partnership.
Formation of a Limited Liability Partnership
The formation of an LLP requires the submission of registration documents to the competent state office and the preparation of a partnership agreement.
Advantages of a Limited Liability Partnership
Limitation of liability for all partners
Direct taxation of profits
Flexibility in profit distribution
Disadvantages of a Limited Liability Partnership
Complex foundation and administrative requirements
Regulatory requirements may vary
Often requires legal advice
Advantages and disadvantages of partnerships
Partnerships offer a number of advantages, but they also entail certain risks.
General advantages of partnerships
Shared resources and skills
Direct taxation without double taxation
Flexibility in corporate management
General disadvantages of partnerships
Unlimited liability (especially in GP and LP)
Dependence on the decisions of other partners
Potential conflicts between partners
Taxes for partnerships in the USA
Partnerships are subject to pass-through taxation, which means that the profits and losses are transferred to the tax returns of the individual partners.
Important tax aspects
Federal income tax
Self-employment tax
Deductions and tax benefits
The partners must declare their share of the profit or loss in their personal tax returns. Self-employment tax may also apply if the partners are actively engaged in the business. There are various deductions that can be used to reduce the tax burden, including business expenses.
Save taxes with a partnership
Partners can reduce their tax burden through careful accounting and tax planning. It is important to document all relevant expenses and find out about the tax benefits.
FAQ on the Partnership
What is the main difference between GP, LP and LLP?
The main difference lies in liability: in a GP, all partners have unlimited liability, whereas in an LP only the general partners have unlimited liability. In an LLP, all partners are protected from personal liability.
How much does it cost to set up a partnership?
Formation costs vary depending on the type of partnership and the federal state, but are generally between USD 100 and USD 500.
Partnership formation for entrepreneurs
Forming a partnership can be a smart decision, especially for entrepreneurs who want to benefit from the resources and skills of their partners.
Partnerships offer a simple structure and flexible management options, but come with certain risks that should be considered.
Conclusion
Partnership is a versatile form of business that can offer significant benefits to many entrepreneurs in the US. If you are thinking about forming a partnership, it is advisable to learn about the specific requirements of your state and possibly consult a professional to make the best decisions for your business.
Legal forms USA: Foundation & real estate
What types of company are there? If you want to set up your first US company, choosing the legal form is one of the first steps in the company formation process. Whether you want to set up a special real estate company or a start-up, we have summarized all types of companies in the USA for you here – with extra tips for real estate investments, of course.
For the first two to ten properties, an LLC (see GmbH in Germany) is best suited to minimize liability risks and at the same time take advantage of tax benefits. The LLC limits the personal liability of the owners, while profits and losses are attributed directly to the shareholders, which avoids double taxation. In comparison, a Limited Partnership (see KG) offers more flexibility in terms of passive participation, but the general partner bears full liability. A general partnership (see OHG) involves higher risks due to unlimited liability.
