Four main types of partnership

The four main types of partnership, each of which is used in specific circumstances, are the limited partnership, the joint venture, syndication, and the joint stock company.

Limited Partnership

In a limited partnership some or most of the partners can avoid the unlimited liabilities that characterizes the general partnership. Usually, the limited partnership has one general partner and a number of limited partners. The general partner is liable for the debts of the partnership and often for supervising all operations; the limited partners are liable only to the extent that they have invested in the partnership.

A typical limited partnership may buy, manage, and sell apartment houses, hotels, and other kinds of real estate. The partners invest capital in the business and receive shares of the profit according to the amounts invested.

The Joint Venture

When two or more persons agree to join in a single transaction or project their partnership is called a joint venture. The partners in a joint venture agree to control and manage the business together. They must also agree to share profits and losses, usually on the basis of each partner’s ownership interest in the property or project.

Thus, for example, should two or more persons jointly buy and own property but for some reason do not share its profits or losses, this would not be considered a joint venture. A joint venture occurs only when the parties intend to do business as a partnership.

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Syndication

A joint venture that involves a large number of individuals is usually known as a syndicate. As with all true joint ventures, syndication requires tax filing as a partnership.

A public offering to sell a syndicate share or interest in a property or business requires special legal handling.

The Securities and Exchange Commission (SEC) has ruled that such sales to the public fall under securities laws.

Joint Stock Company or Association

Some partnerships operate under articles of association that provide for the insurance of a share of stock or certificate to each partner. The certificates represent each partner’s interest. In such a joint stock company or association, the articles of association also provide that a group of partners, called the board of directors, will control the business. Individual partners cannot bind the other partners by entering into separate transactions in the name of the company or association. But participants in the association are responsible for all the legal debts and obligations incurred by the association as a whole.

Federal and State securities laws apply to sales of joint stock company shares or certificates. But, under the typical articles of association, individual partners can transfer their certificates without the consent of other participants. The articles normally specify how long the association will exist and provide that the death or withdrawal of any member will not affect the association.