Classifications of Partnership Business as to Liability of Partners
When two or more persons agreed to form a business and run by them with a view to earning a profit is called partnership business. In the broad sense, partnership business is one which formed by two to twenty persons but in case of the banking business, it is two to ten based on a mutual agreement for the sake of earning a profit.
Classifications as to the liability of partners:
General partnership: A general partnership invokes two or more owners carrying out a business purpose. General partners share equal rights and responsibilities in connection with the management of the business, and any individual partner can bind the entire group to a legal obligation. Such partners have unlimited liability, which means their personal assets are liable for the partnership’s obligations.
The benefit of the general partnership is structure and control. Unless by other agreement, profits are shared equally among the partners. Usually, there is a contract of some sort that outlines how profits and losses will be divided.
Limited partnership: one formed by 2 or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership. However, the limited partners simply invest in the business and have little control over business operations. The limited partnership was a popular partner form in the 1970s and 1980s, before the advent of the limited liability company (LLC) and other types of businesses. The main advantage of this structure is that the owners are typically not liable for the debts of the company.