As regular readers of our Utah business law blog know, we recently began an overview of the different business forms available to entrepreneurs ready to start new businesses.
In a previous post, we discussed the upsides and downsides of sole proprietorship. We’ll take a look in this post at some other business forms.
Partnership
Like a sole proprietorship, a partnership can be formed without red tape. Two people simply have to agree to a business together. Do that and the partnership has been formed.
Profits are reported on personal income tax forms.
The state of Utah again cautions those interested in this business form: “Partners each have unlimited liability for the obligations of the business.” That means if the business fails and accumulates debt, creditors can require partners to pay from individual assets, such as a house and bank accounts.
Limited partnership
Unlike sole proprietorship and general partnership, limited partnerships can be complicated to set up.
There are two types of partners in limited partnerships: one or more general partners and one or more limited partners.
Limited partnerships are typically organized by general partners, who are personally liable for all of the business’s debts and judgments. The general partners then typically recruit investors who become limited partners.
General partners run the day-to-day business operations. Limited partners don’t manage the business and don’t share responsibility for business debt. General and limited partners share business profits.
The state of Utah notes that if limited partners help run the business, they could be found to be general partners and also held liable for business debt.
We’ll have more on business structures in an upcoming post. Please check back.