It gives the assets of the limited partner's protection if the partnership gets into financial trouble. As with the general partnership, the general partners manage the day to day operations of the business and assume responsibility for the debts and other obligations of the partnership. In other words, the general partners run the business. The limited partners maintain responsibility conducive to the amount of their investment and have no control over the daily operations of the company.

A partnership agreement should be drawn up by an attorney and the limited partnership documents should be filed with the state. The agreement should clearly spell out how ownership of the company is to be shared and what role the limited partners are going to play. It should state what happens if one of the partners should want to withdraw from the partnership, how his assets in the company are to be valued and who is to make that decision.

The agreement should also state how long the withdrawing partner should have to wait before he is paid and whether or not it will be in increments. Taxes are not paid by a limited partnership but are passed on through the individual partners. The limited partnership taxes are filed on an Internal Revenue Service Form 1065 and each partner reports his profits or losses on Schedule K-1 of Form 1065.

The word partnership is evoked because those who are involve in the partnership share the good fortunes of the business as well as the bad fortunes

1. Figure out which state the partnership is going to be organized in.

2. Figure out whether you are going to set the partnership up on your own or whether you are going to have Chapter Group help and guide you (it is especially advisable to have the help of Chapter Group if you are setting up a limited partnership or an LLP). (This step is completed by Chapter Group when you choose to use their service)

3. Pick a name for the partnership. In doing this, you should generally do a trademark search, to ensure that someone else is not using the same trade name, and you should also conduct a search of state records for registered businesses, where available, for the same reason. (This step is completed by Chapter Group when you choose to use their service)

4. Determine the relationship of the partners to the partnership - that is, work out what percentage ownership each partner will have, how much each partner will invest, what percentage of profit distribution each partner is entitled to, etc. (This step is completed by Chapter Group when you choose to use their service)

5. Determine how the partnership is going to be controlled and managed. For general partners, all of the partners usually control the partnership equally, so this is not a complicated matter. However, you may choose to have certain partners act as managing partners, in which case this step becomes more important. (This step is completed by Chapter Group when you choose to use their service)

6. Draft a partnership agreement. While it is not necessary to have such a written agreement, it is highly advisable. (This step is completed by Chapter Group when you choose to use their service)

Decide whether to draft and file a statement of partnership (for a general partnership) or a certificate of limited partnership (for a limited partnership). (This step is completed by Chapter Group when you choose to use their service)

8. Obtain a federal tax ID number (known as the employer identification number) for your partnership. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have a federal tax ID number to conduct many transactions on behalf of the partnership (opening a bank account, for example). (This step is completed by Chapter Group when you choose to use their service)

9. Check the state and local laws to determine if there are any other registrations you must make, or any licenses or permits you must obtain to operate your business. (This step is completed by Chapter Group when you choose to use their service)