A partnership consists of two or more people, called partners, who own and operate a business together.

General partnerships

Co-owners of a business who agree to share in the profits and losses of the business are partners and have formed a general partnership whether or not they know it and whether or not they have a written partnership agreement. Perhaps without their knowledge, their partnership is governed by the Missouri partnership statutes, which may have consequences they did not intend. For instance, all partners in a partnership are individually liable for all obligations of the partnership, even if those obligations were created by the actions of only one of the partners.

Given these consequences, if a general partnership is the form of business entity desired, prospective partners should carefully consider all of the issues with the assistance of an attorney and draw up a partnership agreement which can modify some of the statutory rules that would otherwise govern the partnership. They should also consider registering as a limited liability partnership (see the next section).

Limited liability partnerships

A relatively recent innovation in Missouri law is the possibility of registering a general partnership as a limited liability partnership.

In a limited liability partnership, individual partners are shielded from individual liability for partnership obligations that were caused by another partner’s or employee’s misconduct. However, a partner’s liability is not limited for his or her own misconduct or misconduct that took place under his or her supervision or control.

To become a limited liability partnership, a general partnership must file a registration with the Missouri Secretary of State and renew that registration annually. No written partnership agreement is required, but, again, it is strongly recommended.

Limited partnerships

A limited partnership is a special type of partnership involving:

• At least one partner known as a general partner who has management authority, and
• At least one, and usually more, limited partners.

The limited partners share in the profits and losses of the partnership, but they cannot participate in management. On the other hand, limited partners are not personally liable for partnership obligations unless they participate in management.

Forming a limited partnership requires filing Articles of Partnership with the Missouri Secretary of State.

Taxation of partnerships

Partnerships themselves do not pay income tax. However, they are required to file informational tax returns which allocate their profit (or loss) to the partners based on the partners’ respective ownership percentages. The partners then report the income (or loss) on their personal federal and state income tax returns.

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