Every business needs to be insured in some way, but what about partnerships? If you do have some ownership in a business arrangement, but not in the entire organization as a whole, you should only be required to insure your share. This is what small business limited liability insurance is for. Why should you be responsible for everything? If you play a limited role in day-to-day operations, you only need to pay for equity coverage.
The term “limited partnership” refers to a partnership in which there is at least one managing partner and one limited partner. The general partner typically has the same role as in a general partnership, as someone who controls the day-to-day operations of the business and is held personally liable for business-related debts.
The “limited partner”, as mentioned above, does not have much say in the day-to-day operations and decisions of the company. A small business may involve more than one limited partner. To make up for the fact that you are not given an active role in decisions, you have the advantage that you do not have to pay off receivables or business debts with personal assets. However, depending on the circumstances, the limited partner may lose his/her financial investment in the partnership.
What else to look for in small business limited liability insurance
Another thing to consider when looking for small business limited liability insurance is that the tax rules are slightly different. All partners are required to declare and pay individual tax on their share of the annual profit. You probably won’t have to pay self-employment taxes since your status in the business is not “active,” so your share of the partnership isn’t considered “earned income.” The managing partner(s), on the other hand, control the day-to-day operations of the company and are therefore liable for business debts.
There is another type of partnership referred to as “Limited Liability Partnership” or LLP where all owners are given limited personal liabilities. In situations like this, LLPs are usually professionals such as accountants or lawyers. In certain states, only professionals are allowed to be LLPs.
An LLP requires less paperwork than corporations and LLCs. Learn about the rules in your state, pay the relevant filing fee, and create the partnership agreement.
This is just a brief overview limited liability insurance for small businesses. Learn more about your options with Hiscox Business Insurance and the benefits this company offers. There are several tailor-made small business insurance policies tailored to your needs.
Limited liability insurance for small businesses
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