In General: A Joint Venture is a General Partnership typically formed to undertake a particular business
transaction or project rather than one intended to continue indefinitely. Most often, joint ventures are used in
real estate matters where 2 or more persons undertake to develop a specific piece of real property.
Limited Partnerships in general: In a Limited Partnership, one or more 'general" partners manage the
business while "limited" partners contribute capital and share in the profits but take no part in running the
business. General partners remain personally liable for partnership debts while limited partners incur no
liability with respect to partnership obligations beyond their capital contributions. The purpose of this form of
business is to encourage investors to invest without risking more than the capital they have contributed.
Duration: Death, disability, or withdrawal of a general partner dissolves the partnership unless the
partnership agreement provides otherwise or all partners agree, in writing, to substitute a general partner.
Note, death or incompetence of a Limited Partner has no effect on the partnership
Formalities: The formalities of setting up and operating a limited partnership are very similar to that of
starting a small, for-profit corporation. The California Limited Partnership Act, for example, requires the filing
of a certificate with the Secretary of State, applies restrictions on the use and availability of partnership
names, contains statutory requirements with respect to the manner of calling and holding meetings, and
contains many corporation-like requirements.
Limited Liability Partnership (LLP)
LLP in general: California allows attorneys and accountants to operate their practices as a limited liability
partnership. This formation is a General Partnership that elects to be treated as an LLP by registering with
the Secretary of State. Many attorneys and accountants find the LLP as a very attractive alternative since it
shields the partners from vicarious liability, can operate more informally and flexibly than a corporation, and
is accorded full partnership tax treatment. Note, in California, with certain exceptions, the LLP is only
available to attorneys and accountants.
Registration: Registration in California, for example, is effected by filing a written statement with the
Secretary of State (along with a filing fee) setting forth the name and principal office address, name and
address of its agent for service of process in California, a brief statement of the partnership's business, and
a statement that the partnership is registering as a limited libaility partnership. An annual tax is thereafter
imposed on LLPs equivalent to the minimum franchise tax imposed on California corporations (i.e. $800).
Limited Liability Company
Advantages of forming an LLC
In general: An LLC is a hybrid between a partnership and a Corporation in that it combines the
"pass-through" treatment of a partnership with the limited liability accorded to corporate shareholders.
Two members required: Unlike a corporation which can have as few as one shareholder, most states
require that an LLC consist of two or more members (owners). Recently, however, more states are allowing
single-member LLCs. Please note, however, that the IRS may treat a single person LLC differently than an
LLC with more than one member.
Separate Legal Entity: Like limited partnerships and corporations, an LLC is recognized as a separate legal
entity from its "members."
Limited Liability: Ordinarily, only the LLC is responsible for the company's debts thus shielding the
members from individual liability. However, there are some exceptions where individual members may be
Guarantor Liability: Where an LLC member has personally guaranteed the obligations of the LLC, he or she
will be liable. For example, where an LLC is relatively new and has no credit history, a prospective landlord
about to lease office space to the LLC will most likely require a personal guarantee from the LLC members
before executing such a lease.
Alter Ego Liability: Very similar to the judicial doctrine applied to corporations where a court may hold the
individual shareholders liable where the business entity is merely the "Alter Ego" of its shareholders, a
member of an LLC may also be held liable for the LLCs debts if the court imposes its "alter ego liability"
Please note, however, that although a corporation's failure to hold shareholder or director meetings may
subject the corporation to alter ego liability, this is not the case for LLCs in California. An LLC's failure to hold
meetings of members or managers is not usually considered grounds for imposing the alter ego doctrine
where the LLC's Articles of Organization or Operating Agreement do not expressly require such meetings.
Management and control: Management and control of an LLC is vested with its members unless the
articles of organization provide otherwise.
Voting Interest: Ordinarily, voting interest directly corresponds to interest in profits, unless the articles of
organization or operating agreement provide otherwise
Transferability: No one can become a member of an LLC (either by transfer of an existing membership or
the issuance of a new one) without the consent of members having a majority in interest (excluding the
person acquiring the membership interest) unless the articles of organization provide otherwise.
Duration: Although many states now allow an LLC to have a perpetual existence, LLC's traditionally were
required to specify the date on which the LLC's existence will terminate. In most cases, unless otherwise
provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death,
withdrawal, resignation, expulsion, or bankruptcy of a member (unless within 90 days a majority in both the
profits and capital interests vote to continue the LLC).
Formalities: The existence of an LLC begins upon the filing of the Articles of Organization with the Secretary
of State. The articles must be on the form prescribed by the Secretary of State. Among the required
information on the form is the latest date at which the LLC is to dissolve and a statement as to whether the
LLC will be managed by one manager, more than one manager, or the members.
To validly complete the formation of the LLC, members must enter into an Operating Agreement. This
Operating Agreement may come into existence either before or after the filing of the Articles of Organization
and may be either oral or in writing.