WIB Answers - Do you have any advice on limited vs. general partnerships?

A Women in Business reader, asks:

I'm establishing a business and found a terrific marketing manager. Since I don't have the funds to pay him monthly for his service I've decided to work out a percentage of a partnership with him. Do you have suggestions on this?

First, the obvious – put everything in writing.

You need to clearly establish whether he will be a general or limited partner – it makes a huge legal difference. General partners have liability to the company so you may need to include a general partner on your business insurance policy.

A general partner owns part of a business and has legal rights to benefit from income and profits, but also has unlimited legal liability for the debts of the partnership. A general partner is actively involved in the day-to-day decisions and operations of the partnership.

A limited partner has certain legal rights to benefit from income and profits, but has no legal liability for the debts of the partnership. A limited partner is not actively involved in the day-to-day decisions and operations of the partnership.

If you want to form the partnership as a limited partnership you should put in writing that although the partnership is limited, the partner has agreed to offer certain marketing services pro bono in lieu of a cash investment.

As for percentage arrangements, if you will be the partner assuming all the debts and obligations, you should also retain the majority of the percentage of ownership and profits.

Good luck with your new business!

Information About Business Partnerships

• 7 Tips on How to Choose a Business Partner
• General, Limited and Limited Liability Partnerships
• The Basics, and Pros and Cons of Forming Partnerships