Which type of business should i form

Asked over 4 years ago - Raleigh, NC

- Persons wishing to form a general partnership can simply establish the partnership by stating that they are partners; sometimes the partnership can even be established without the express intent of the general partners. On the other hand, in order to form a limited partnership the individuals forming the partnership must file a document with the Secretary of State to create the entity. Why are the two entities treated so differently in this regard?

Attorney answers (3)

  1. Andrea Leigh Hinshaw

    Contributor Level 8

    Answered . Mr. May is correct. In North Carolina, a certificate of registration with the Secretary of State must be filed to form a limited partnership along with a fee, usually around $125. The ability of the limited partner to have limited liability is truly what distinguishes a limited partnership from a general partnership. By having limited liability, the limited partner normally cannot be held responsible for debts and obligations of the partnership for more than he or she contributed to the partnership. One reason the state requires limited partnerships to file with the Secretary of State is to put people on notice that they are dealing with a limited partnership and that at least one partner has limited liability. This is also why the state requires the words "limited partnership" or "L.P." to be in the title of the partnership. If you are considering forming a partnership, I recommend speaking with an attorney who handles business formations.

  2. Markus May

    Pro

    Contributor Level 9

    Answered . Interesting question. Not sure about the answer for NC as I am in Illinois, but suspect the answer is similar. Partnerships, as you note, are generally formed when 2 or more people join together in a common enterprise for profit. No written agreement is generally necessary and this is all based on what is called common law. This is the old law that has been around a long time and is based on cases from courts. Generally all partners in a general partnership are liable for all of the partnership debts. This default form of business ownership can occur when 2 people decide to run a lemonade stand together. In some states general partnership are required to register with the county and not the state - it used to be people went to the local county recorder's office to see who owned a company if they were owed money.

    Limited partnerships are more recent creatures of state law. They are created by a state written law and of both a general partner(s) (with full liability for all debts) and a limited partner(s). The limited partner has limited liability and is generally not responsible for the debts of the partnership beyond the amount of money the limited partner contributed.

    States like to keep track of the entities that operate in their states. If a creditor is owed money, they can look the entity up in the appropriate state/county record and know who to file suit against. This will be the registered agent for the company or the individual owner. In some states like Illinois, individual business owners are required to register with the county - but then corporations, LLCs and ltd partnerships register with the state (and sometimes with the county as well).

    In checking your NC law you may find that the general partnership is supposed to register somewhere once it runs a business. Maybe its with the county? It all depends on what the legislature decides.

    The real answer is - you have to file because the state says so.....

    Generally, I don't recommend partnerships for my clients because of the liability issues involved. If you are looking to form a new business, I suggest a limited liability entity such as a corporation (C or S) or limited liability company be examined in addition to the limited partnership. I am sure you can find a good business attorney in Raleigh to help with this.

  3. Markus May

    Pro

    Contributor Level 9

    Answered . Interesting question. Not sure about the answer for NC as I am in Illinois, but suspect the answer is similar. Partnerships, as you note, are generally formed when 2 or more people join together in a common enterprise for profit. No written agreement is generally necessary and this is all based on what is called common law. This is the old law that has been around a long time and is based on cases from courts. Generally all partners in a general partnership are liable for all of the partnership debts. This default form of business ownership can occur when 2 people decide to run a lemonade stand together. In some states general partnership are required to register with the county and not the state - it used to be people went to the local county recorder's office to see who owned a company if they were owed money.

    Limited partnerships are more recent creatures of state law. They are created by a state written law and of both a general partner(s) (with full liability for all debts) and a limited partner(s). The limited partner has limited liability and is generally not responsible for the debts of the partnership beyond the amount of money the limited partner contributed.

    States like to keep track of the entities that operate in their states. If a creditor is owed money, they can look the entity up in the appropriate state/county record and know who to file suit against. This will be the registered agent for the company or the individual owner. In some states like Illinois, individual business owners are required to register with the county - but then corporations, LLCs and ltd partnerships register with the state (and sometimes with the county as well).

    In checking your NC law you may find that the general partnership is supposed to register somewhere once it runs a business. Maybe its with the county? It all depends on what the legislature decides.

    The real answer is - you have to file because the state says so.....

    Generally, I don't recommend partnerships for my clients because of the liability issues involved. If you are looking to form a new business, I suggest a limited liability entity such as a corporation (C or S) or limited liability company be examined in addition to the limited partnership. I am sure you can find a good business attorney in Raleigh to help with this.

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