Legal structures this chapter covers
General partnership
Two or more people carrying on a business for profit. Often formed implicitly, without a formal state filing, when two or more people start working together. General partners are personally liable for the partnership's debts and obligations. The federal tax treatment is partnership (Form 1065). Many small partnerships start as general partnerships and convert to LLCs or LLPs once they reach meaningful liability exposure.
Limited partnership (LP)
A partnership with at least one general partner (full liability, management authority) and at least one limited partner (limited liability up to the amount invested, no day-to-day management). Common in real-estate investment, in private investment funds, and historically in family-investment vehicles. The general partner is often itself an LLC or corporation to provide the GP with a liability shield.
Limited liability partnership (LLP)
A partnership variant providing liability protection to all partners. Common among licensed professional firms (law, accounting, architecture, medicine, engineering) where state law sometimes requires a partnership form rather than an LLC. The federal tax treatment is partnership (Form 1065).
Same tax form, different legal posture
All three structures file Form 1065 and issue K-1s. The bookkeeping fundamentals match the multi-member LLC chapter: per-partner capital accounts, distributions, guaranteed payments, allocations per the partnership agreement.
The legal differences (which partners are liable, who manages, who has voting rights) do not change the accounting much, but they do change two things in the software setup: the user-permissions structure (limited partners often get read-only access to financials), and the disclosure detail in the K-1 (passive vs active interest, which affects allocation of items subject to passive-activity rules).
Bookkeeping requirements
The same as a multi-member LLC. Capital accounts per partner, distributions tracked separately, guaranteed payments distinguished from distributions, allocations per the partnership agreement. See the multi-member LLC chapter for the full discussion. Two partnership-specific additions:
- • Active vs passive interest tracking. Limited partners are usually passive; general partners are usually active. Some K-1 line items are reported differently based on activity level.
- • Specialised reports for the partnership agreement. Waterfall calculations, preferred-return tracking, and per-partner ROI computations live in supplementary reports the accounting software may or may not produce natively.
Software feature implications
For most general partnerships and LLPs, mainstream cloud accounting works once you have configured the chart of accounts with per-partner capital accounts. For LPs (real-estate or investment funds in particular), the partnership-agreement complexity often pushes toward mid-market or specialist real-estate accounting platforms.
For professional partnerships (law, medical, accounting, architecture firms), time-and-billing alongside accounting is often the deciding feature. Mainstream cloud accounting typically integrates with specialist time-billing tools or includes basic time tracking. Higher-complexity firms (multiple billable rates, retainer arrangements, trust accounting in legal practice) usually pair accounting with a specialised practice-management product. See /for-service-business for that discussion.
Specific considerations for professional partnerships
Law firms
Trust accounting (IOLTA accounts) is regulated separately from operating accounting in every US state. Trust funds belong to clients, not to the firm; they cannot be commingled with operating funds and must be reconciled to client matter balances at all times. Generic accounting software is rarely sufficient on its own; most law firms pair accounting with a practice-management product (Clio, MyCase, PracticePanther, others) that handles IOLTA. The accounting software is downstream of the practice-management software.
Medical practices
Insurance billing, EHR integration, and HIPAA considerations sit upstream of accounting. Most medical-practice books receive summary entries from the billing system rather than raw transactions. Mainstream cloud accounting generally suffices for the partnership-level books; the complexity is in the upstream billing and revenue cycle.
Architecture and engineering firms
Project profitability, time-and-materials billing, and percentage-of-completion revenue recognition for long-running projects. Some specialist products (BQE Core, Deltek Ajera) target this segment specifically. For smaller firms with simpler project structures, mainstream cloud with project tracking is adequate.
Accounting and consulting partnerships
Often run on QuickBooks Online or Xero because the partners are themselves CPAs and have strong views about the tooling. Time-and-billing through a connected practice-management tool. The chart of accounts is the partners' own design, which is one of the few cases where the partnership and the software vendor are on equal terms.
Category recommendations
| Category | Fit | Why |
|---|---|---|
| Free / low-barrier | Not the fit | Insufficient multi-user and partner-equity tracking for any partnership beyond two equal owners with simple allocation. |
| Mainstream small-business cloud | Strong fit | Default fit for general partnerships and LLPs with simple structure. Configure chart of accounts with per-partner equity, give partners and accountant access. |
| Service-business specialist | Acceptable fit | Reasonable for professional partnerships where time-and-billing dominates the workflow; pair with the partnership-level books. |
| Mid-market | Acceptable fit | The right category for LPs with complex waterfalls, multi-entity partnerships, or larger professional firms. |
| Managed bookkeeping services | Strong fit | Per-partner equity tracking and allocation calculations benefit from a human; many partnerships outsource bookkeeping for this reason. |
Frequently asked questions
What is the difference between a general partnership and an LLC?
A general partnership is a default legal structure formed when two or more people carry on a business for profit; no formal filing is required to create one (though most states require a doing-business-as registration). General partners are personally liable for partnership debts and obligations. An LLC is a separate legal entity formed by filing articles of organisation with the state, providing limited liability for the members. Both can be taxed as partnerships under federal tax law, so the bookkeeping requirements overlap. See llcvsscorp.com for the full structure discussion.
What is an LLP and who uses it?
A limited liability partnership (LLP) is a partnership variant that provides liability protection to all partners, similar to an LLC. LLPs are commonly used by licensed professional firms (law, accounting, architecture, medicine) where state law often requires a partnership form rather than an LLC. The federal tax treatment is partnership (Form 1065). The bookkeeping requirements match a multi-member LLC.
Do I need time-and-billing software in addition to accounting?
Often yes, particularly for professional partnerships (law firms, consultancies, architecture firms) where time billed to clients is the core revenue mechanism. Many mainstream cloud accounting products include time-tracking; for higher complexity (multiple billable rates, retainer accounting, trust accounting in legal practice), specialist time-and-billing tools that integrate with accounting are common. See /for-service-business and /feature/invoicing.
Are limited partners shown the same financial detail as general partners?
Operating agreement and securities-law dependent. Most partnership agreements give limited partners access to financial statements and tax documents (including their own K-1) but not necessarily to the day-to-day general ledger. Multi-user accounting software typically supports per-user permission levels, which lets you give limited partners read access to financial reports without giving them transaction-edit access.
Related guides
Companion pages on this site and on our portfolio of independent pricing references.
Same Form 1065 tax treatment; different legal structure. The bookkeeping fundamentals are shared.
Most professional partnerships are service businesses; the service-business chapter covers time-and-billing depth.
Partnerships can elect S-Corp; the bookkeeping changes substantially.
When invoicing is the deciding feature; relevant to professional partnerships with retainer billing.