In this week’s post, we want to compare Partnerships with Limited Companies. While Partnerships and Limited Companies have certain characteristics in common, they differ substantially in other areas. The two main differences stem from the fact that Limited Companies, as the name suggests, limit the liability of all shareholders to the amount invested or guaranteed to the company and that Limited Companies allow the separation between ownership and management.
Partnerships are arrangements where two or more people cooperate to advance their mutual, in most of the cases economic, interest. Normally, all Partners are jointly and wholly liable for all obligations the Partnership might occur. Jointly means that each Partner is liable for all Partner’s wrong doing and wholly meants that all Partners are liable with their personal wealth for any obligations the Partnership might occur. Only in the case of Limited Partnerships, the liability of certain shareholders is limited. Limited Companies, however, limit the liability of their shareholders to the amount invested into the company.
While Partnerships need to be managed by at least one of the Partners, Limited Companies are managed by a Board of Directors, which is elected by the Shareholder General Assembly where the owners are represented. This means, that Partnerships are designed to be managed by its owners, while Limited Companies can be managed by anyone, no matter if shareholder or not. This clear separation of ownership and management clearly shows that Limited Companies are usually designed to be open towards a larger circle of potential owners. While shares of Limited Companies can typically be freely traded, the entrance into a Partnerships needs the approval of all Partners.
Generally, Partnerships are easier and costlier to set-up, manage and maintain than Limited Companies. Investors should be aware that their selection of a company type has significant implications – legally, organizationally and last bot not least financially. It is important to select the most suitable type of legal set-up before becoming operational.