Yes, a corporation can act as a partner in a partnership. This is because many states, including California, allow a corporation to do many of the same things as people, including owning property, hiring employees, and entering into contracts.
In partnerships, a corporation has various duties and responsibilities, the same as any individual acting partner would. Having a corporation as a partner can offer advantages under certain circumstances, as they have legal and financial protections that individuals do not. Typically, an officer of the corporation would sign the partnership agreement on its behalf.
This means that, while a general partner who is a person would have unlimited liability for the debts of the partnership, a corporation would have limited liability. General partners can be sued to collect the debts of the partnership, but corporations are separate legal entities that shield the owners’ personal assets from lawsuits.
When a corporation acts as a partner, that corporation is eligible to receive a share of the profits of the partnership. It would also be responsible for judgments, settlements, and debts of the partnership.
It is important to note, however, that only the assets of the corporation itself and not the assets of the officers, employees, or shareholders could be used to satisfy liabilities or debts of the partnership.
General partnerships are not considered independent entities. Most states will allow a partner to be a person, another partnership, a trust, a corporation, or a limited liability company (LLC).
S corporations can be partners in general partnership and limited liability partnerships. This type of corporation uses pass-through income, meaning each shareholder reports income and losses on their own personal tax returns.
This means that the S corporation is not subject to double taxation. In order to be an S corporation, the corporation has to meet the following certain requirements, including that it:
- Must be a domestic corporation
- Can only have certain, specific shareholders, which may include:
- Individuals, estates, and certain trusts
- Does not include corporations, partnerships, or non-resident aliens as shareholders
- Does not have more than 100 shareholders
- Only has one class of stock
- Is not an ineligible corporation under the Internal Revenue Code, which may include:
- Insurance companies
- Certain financial institutions
Operating as a limited liability partnership does not shield partners from liabilities caused by their own negligence. However, when an S corporation is a partner in an LLP, it does provide a shield against liability for negligence for its shareholders.
LLPs may also have more than one S corporation. LLPs have to file a registration renewal annually, or they may lose their limited liability protections, making the partners vulnerable to claims on their personal assets.
Both corporations and people can enter into general partnerships and limited partnerships. With general partnerships, all partners participate in the daily operations of the business.
They are also expected to equally pay the partnership’s liabilities. In contrast, partners in limited partnerships are not actively involved in the daily operations.
Limited partnerships are called limited because each of the partners have limited liability. With a startup, for example, a corporation can be a limited partner, so it would not be liable for the debts of the startup beyond its initial investment amount.
California lawyers can help clients understand the advantages and disadvantages of having a corporation as a partner in California. They can also assist with the process of making the corporation a partner.
Legal Requirements for Forming a Partnership With a Corporation
In California, in order to form a partnership with a corporation, a formal partnership agreement must be created. This agreement outlines the roles, responsibilities, and profit sharing of the entity.
If a completely new partnership is formed, it will require its own Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Even though a written partnership agreement is not technically required, as the partnership can be created orally or be implied, it is very important to have any agreements in writing. This document can help avoid issues and be used in court if an issue does arise with the partnership in the future.
In addition, the partnership may need to register its business name as well as obtain any required permits and licenses for operation at the local, state, and federal levels. By having a California lawyer consultation, an individual can ensure that their partnership is properly formed under California law, meets all requirements, and has an enforceable and clear written agreement in place.
Advantages and Disadvantages of a Corporation Joining a Partnership
There are many advantages as well as disadvantages of corporations as business partners in partnerships.
Advantages
When a corporation joins a partnership, it can provide additional capital and other resources, such as access to more opportunities and contacts to expand business opportunities. This can help with the growth and expansion of the partnership.
It can also provide access to new business opportunities and skills. This can provide additional perspectives, which can help with decision-making and problem-solving.
The corporation can share in the burden of running the partnership. This can lead to a better balance of work and life for partners as well as increased efficiency.
The cost of setting up and maintaining a partnership is usually less expensive than other business structures. This is especially true compared to creating a new branch or subsidiary of a corporation.
Disadvantages
Some of the disadvantages of a corporation joining a partnership are the potential for disagreements, loss of full autonomy, and unlimited liability for the assets of the corporation. Additionally, the structure of the partnership may make an exit difficult for the corporation, as decisions about the partnership are not in the hands of the corporation alone.
Entering into a partnership can result in disagreements over many issues, such as finances, business strategy, and others. These may be difficult to resolve due to the structure of the business.
When a corporation enters a partnership, it has to share in the decision making. This means that the process may be slower and the corporation may have limited control over the business.
When a corporation is a partner, it can be held liable for the legal obligations and debts of the partner. This can place its assets at unlimited risk.
When a corporation joins a partnership, it likely signs a partnership agreement. This may result in lower earnings for the corporation itself.
If the corporation wants to leave the partnership, it may be difficult to dissolve or for a partner to buy out another partner. This can lead to disputes and conflicts when the business relationship ends.
Special Considerations for Corporations Serving as Partners
There are some special considerations for corporations serving as partners in California. A corporation can typically file as a partner in a general partnership without legal issues.
With other partnerships, such as limited liability partnerships (LLPs), however, there may be some restrictions. For example, the state laws may restrict partnership in LLPs to only people with professional licenses.
If a corporation then wants to be a partner in an LLP in these situations, it must typically have a majority of owners with the required professional licenses. It must also provide professional services for which the individual owners hold licenses.
A corporation that is a partner may also be held liable in the same way that individual partners in general partnerships and limited partnerships may be. This includes the obligations, debts, and failures of the partnership.
Do I Need a Lawyer for Assistance With Partnership Laws?
Yes, it is very important to have assistance from a California corporate lawyer for any questions or concerns related to partnership laws and having a corporation as a partner. Forming partnerships can be complicated, especially when there are overlapping issues, for example, corporate interests.
A corporate attorney can help you with determining the best type of business, such as a corporation, partnership, or partnership of corporations, that would best fit your needs. Your lawyer will draft any documents and partnership agreements. Additionally, they would assist with any California state filing requirements.
If a dispute arises involving the partnership, your lawyer will represent your interests. Having a lawyer involved from the start can help your business succeed and expand.
You can find a California corporate attorney in as little as 15 minutes online using LegalMatch’s no cost attorney matching services. LegalMatch will match you with prescreened and licensed lawyers in your area who can help you with your partnership needs.
