There are a few different ways in which two or more individuals can form a legal business partnership in New York. A limited partnership is one of these options.
Before two or more individuals decide to start a business together and create a partnership, they need to consider the roles and liabilities each will assume in that company. The minimum requirements for a limited partnership include at least one general partner who makes management decisions and one silent partner who cannot legally participate in the decision-making process. The general partners assume personal liability for the partnership’s debt and litigation. The silent partners contribute money and share in the profits. They are not responsible for debts that exceed their initial investment.
Business & commercial law
State laws regulate the formation of companies in each state. In New York, general partners sign a partnership agreement and file a Certificate of Limited Partnership with the New York Department of State.
Although the company does not file the partnership agreement with the state, the document should clearly explain how profits and losses are shared and distributed and describe the process for selling an ownership stake in the company.
There are distinct advantages for silent and general partners in a limited partnership. These include:
- Investors cannot interfere in management decisions.
- A silent partner’s liability cannot exceed their initial contribution.
- Multiple general partners bring different skills into the management structure.
- Silent partners can leave the company without impacting management.
Whether something is an advantage or disadvantage sometimes depends on your role. Managers and investors may have different points of view.
There are several disadvantages to a limited partnership. Some of these include:
- A silent partner may wish to participate in management but cannot.
- General partners have personal liability for the company’s debt.
- No stock shares exist, so a general partner may have difficulty transferring their ownership position.
- If general partners have serious disagreements, they may dissolve the business.
If you’re planning on starting a company, do it right. Make sure you file all the legally required paperwork with the New York Department of State.