• Types of Partnerships
A partnership is divided into different types depending on the state and where the business operates. Here are some general aspects of the three most common types of partnerships.
1. General Partnership (GP)
A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal right. All partners can participate in management activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally.
2. Limited Partnership (LP)
In this partnership, includes both the general and limited partners. The general partner has unlimited liability, manages the business and the other limited partners. Limited partners have limited control over the business (limited to his investment). They are not associated with the everyday operations of the firm.
3. Limited Liability Partnership (LLP)
In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded against other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general partnership.
4. Non-Equity Partnership: Some law firms have introduced non-equity partnerships, where partners do not hold ownership stakes in the firm and typically receive a fixed salary instead of sharing in profits. This model provides a career progression path and can enhance flexibility in talent retention and management. Firms like WilmerHale and Cleary Gottlieb Steen & Hamilton have adopted this structure to remain competitive and retain skilled lawyers.
Every partnership type comes with unique benefits and factors to consider, including management authority, financial liability, and profit distribution. Selecting the right structure depends on the partners' objectives, risk appetite, and preferred way of operating the business.