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all right in this short video we're going to talk specifically about Partnerships uh Partnerships represent one of the several Common forms of business ownership and they share many characteristics that a sole proprietorship does but there's a couple of key differences uh where sole proprietorship involves one person at the helm one person in charge of making decisions they essentially are the owner of the business a partnership means that the business is owned by at least two people and these owners in a partnership share responsibility they share responsibility for completing tasks they share financial resources they share profits at the very end uh and so Partnerships are are great in a way because you take advantage of a multitude of different skill sets right one of the big issues with a sole proprietorship was that you were limited to the skills that only you possessed and you were limited to the financial resources that were only at your disposal with one of the Partnerships or with a partnership rather you have the opportunity to leverage a greater variety of skills as well as financial resources and that's a very significant Advantage for Partnerships okay now now we differentiate Partnerships into two separate categories uh for purpose of they they share similar characteristics on one end we have what we call a general partnership uh a general partnership shares responsibility amongst the actual partners and so they they contribute uh equally usually although they can have different Arrangements of course and they also receive typically to somewhat equal amounts usually General Partnerships have what we call a partnership agreement although they're not required to and a partnership agreement really outlines the specific contributions and responsibilities that each partner is going to have they typically will outline what happens when uh one of the partners dies they may outline how do Partners split profits is it 50/50 or is it some other Arrangement they'll outline who contributes what resources what Financial Resources uh and so they're very comprehensive the idea behind the partnership agreement is you want to try and consider as many scenarios as possible because the goal here is to have something in writing so if there's ever a disagreement you can refer to the partnership agreement and use that as a way of clarifying the situation unfortunately if you don't have this which I mentioned before you're not required to create one if you don't have a partnership agreement outling what to do in specific circumstances then you're you're going to have a lot of conflict and it's going to continue to come up so it's better to have things ironed out in advance for that very reason now in addition to leveraging skills and the financial resources of your partners uh General Partners also provide you with certain tax advantages very similar to a sole proprietorship a general partnership the owners and the business are considered to be one uh they're the same thing the business is not a SE is not separated from the actual owners and so because of that it allows you to claim any type of profits uh as income on your own personal tax returns and so very similar to a sole proprietorship we know that the corporate tax rate is usually around 35 40% and so usually the individual rates are much lower than that and and so you can claim that as your own personal income and save yourself a little bit of money with a lower tax bracket of course now one of the significant disadvantages of a general partnership is once again this idea of unlimited liability and in fact unlimited liability is even more of an issue in a general partnership because you remember if you were call back to a sole proprietorship the idea behind unlimited liability is if your business for whatever reason was not able to uh pay its debts or continue to operate and had some debt available creditors could pursue the owner uh in their personal assets as a way of fulfilling the debt is making the debt whole essentially and the reason for that is the owner and the business are considered to be one person right same thing the same time you get benefits for taxes obviously provides a disadvantage in related to liability now the problem though with the partnership is there are two people right and so that means that not only are you responsible for your own decisions but you're responsible for the decisions of your partner and so if they if they go and they bind the business to certain agreements and certain contracts and things and unfortunately your business can't operate well creditors have the opportunity to pick whom it's called Joint and severally liable and so what happens is creditors going to pursue the individual that has the most financial resources and if that ends up being you although it's rather unfortunate they're going to go after the person that has the deepest Pockets because they know they can get their money from someone maybe your partner doesn't have a great deal of personal assets but you do and so chances are I'm going to pursue the person that is most likely to be able to pay me back um so that's a very significant issue and so in order to assist businesses in acquiring funding uh what we've created or what we call limited Partnerships and limited Partnerships are organized very in a very similar fashion to General Partnerships the only difference is they have mult multiple parties involved right first you have what we call the General partner or Partners there can be more than one General partner the general partner is going to control the day-to-day decision- making and so they're going to be responsible for determining who to hire what to produce and what quantity to produce certain things they make all of the decisions on the day-to-day basis and the reason they get that opportunity is because they are going to be personally liable for the business debts and so obviously if you're going to be assuming that level of risk there should be some type of advantage that goes along with that right so if I'm going to assume the liability I get the opportunity to make the day-to-day decisions okay now the other party that's involved is a limited partner and limited partner is essentially the financial backer they're going to commit certain amount of Financial Resources however in return what they get is limited liability meaning that if you have a potential limited partner and they want to contribute let's just say $10,000 okay if the business essentially fails and creditors come after all of the owners trying to get as much as they can because obviously they're not not going to get be they're not going to be made whole uh they can only pursue limited partners for their original investment that $110,000 right so if you're the limited partner you invest $10,000 in the business okay uh you essentially are only responsible for that 10 grand so if you lose it right that goes away you cannot be pursued for your personal assets which is certainly uh kind of a better deal for the limited partner now the trade-off of course is you typically are not involved in the day-to-day decision making now obviously you have some involvement because if you're going to commit Financial Resources you usually want to make sure that they're used responsibly and you can always pull your investment right so you have some involvement to a degree but you're not as heavily involved as a general partner you're not making each and all of the decisions on a day-to-day basis that's reserved for the general partner partner but the great thing that the partner or the limited partnership allows you to do is it allows businesses to attract investors because investors are are going to have a lot of financial resources and they typically don't want to be on the hook for the actual business debts but they may want to invest because they feel like the business is growing and could potentially provide them with a greater return and so allowing them to be that limited partner is a great way to entice them and motivate them to invest in your business but also for them to not have the the same disadvantage and the same issues with unlimited liability much like General Partners do so both of these represent Partnerships right they're just simply subcategories of the two both a general partnership and a limited partnership uh by and large General Partnerships are more common and limited Partnerships rather are made with the intent to appeal towards investors so you can attract them and they invest in your particular business