In commercial law, both general and limited partnerships are business arrangements in which two or more people own a company or enterprise. But each accomplishes this goal in different ways. Learn about their distinctions, so you can determine which structure is most beneficial for your business.

General Partnerships

General partnerships are often just referred to as partnerships. In this arrangement, all owners are involved in running the business and making routine management decisions, and they each can enter the business into legal contracts.

In most partnerships, each owner carries a specific share of the business responsibilities. These details are worked out in the partnership agreement prior to the formation of the company. If no agreement is made, then all owners carry an equal share of responsibility.

Unless stated otherwise, there is usually no limit on the personal liability each owner has for the business's debts, which means each is personally responsible for their share plus the share of the other owners. For instance, if a creditor sues one partner for nonpayment of a debt, and that partner doesn't pay, the creditors can legally pursue payment from the other partners.

In Hawaii, a general partnership doesn’t pay taxes; the individual owners declare the business income on their personal taxes.

Limited Partnerships

As their name suggests, limited partnerships limit the personal liability of each owner. Partnership agreements drawn up by a commercial law attorney are always necessary in this type of arrangement.

There are both general and limited partners in a limited partnership. The limited partner is only responsible for their own share of debts, but they don’t have a primary role in day-to-day operations or routine management decisions.

The general partner handles the normal business operations but has a total responsibility for the company's debts as they would in a standard general partnership.

A limited partnership does not itself pay taxes, but each owner does.

For assistance setting up a partnership, consult Donald L. Spafford, Jr., Attorney at Law. The attorney has represented clients throughout the Honolulu, HI, area for nearly four decades. He offers legal services in commercial law cases, business transactions, and business and personal bankruptcy claims. Call (808) 532-6300 or visit his website to find out more about his practice areas.