Minnesota Partnership Law

Flanders Law Firm LLC March 2, 2018

Minnesota Partnership Law

If you’re considering starting a business, one of the most common ways of doing it is to form a partnership. There are a lot of advantages to structuring your business as a partnership, but there are also a lot of particulars that need to be understood before you make your mind up. To learn more about partnerships and the different forms they take, keep reading.

First things first, what is a partnership? A partnership is any business formed and owned by two or more people. Can it be three? Yes. Four? For sure. The number does not matter so long as it is more than one. Does there have to be a partnership agreement for a partnership to be valid? No, a partnership agreement is not required to create every partnership. That said, it would be a big mistake to skip over this important step. Lots of problems can be avoided by taking the time to draw up a detailed partnership agreement. What are the different forms a partnership can take? There are three basic types and we’ll discuss them below.

General partnership

When most people think of a partnership, the reality is that many are actually imagining a general partnership. In a general partnership of two or more people, each partner is liable for the debts taken on by the business. In this form of partnership, there is no limitation of liability, meaning the partners’ assets can be on the line if something goes wrong and the business folds. In a general partnership, any and all partners have what are known as agency powers and can legally bind the business to a deal or agreement. In general partnerships, each partner has an equal right to participate in management and control and, as a result, the default is that profits are also split equally (though this can be changed by agreement). General partnerships are relatively straightforward and easy to get started; very little paperwork is involved in their formation.

Limited partnership

A limited partnership exists in cases where two or more people come together to form a business in which one or more of the partners are liable only to the amount of money that he or she invested into the partnership. This means that the limited partner has an important protection and is shielded personally in the event that something goes wrong with the business. In limited partnerships, one of the partners must be considered a general partner and at least one will be deemed a limited partner. The limited partner invests money in the business, but does not take on risk and, as a result, has minimal control over normal business decisions and operations. These decisions are made by the general partner, who remains on the hook personally for any business debts that arise.

Limited liability partnership

Finally, we have limited liability partnerships (LLPs, for short). LLPs are very similar to limited partnerships in that they both involve limitation of liability. The big difference between a limited partnership and an LLP is that limited partnerships must have at least one general partner. LLPs, on the other hand, have no general partners. All of the owners have limited their personal liability and are not on the hook for any business debts. LLPs are well suited for certain professional groups and are especially common among lawyers and accountants, for example. This allows the other partners to avoid being held liable for malpractice of another partner. This debt is owed by the business (and potentially the individual guilty of the malpractice), but not by the innocent partners in a LLP.

Minnesota Partnership Lawyers

It’s good to know that with the right help, establishing a Minnesota small business does not have to be a scary proposition. An experienced Minnesota small business attorney can help walk you through the process of setting up your new company and ensure it offers the maximum benefits for your individual situation. For more information, contact Joseph M. Flanders of Flanders Law Firm at (612) 424-0398.

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