I don't want to get everybody all worked up about this issue of liability. In deciding how to organize a new business, you have to balance various considerations. You want a structure in which the responsibility is assigned in proportion to the commitment of the various participants. You want to limit the potential loss a participant can sustain as much as possible. You want to minimize the percentage of your gains that the tax man will pocket. You want an organization which can grow and change without catastrophic problems.
From almost every consideration except that of taxes, a corporation is the best. But since we have the potentially disastrous royalty tax problem, we can't incorporate safely. Thus, a discussion of liability is in order as that is the major difference in the two forms of partnership. This business is very different from most start-up ventures. We are capitalizing the company by contributing money to the original ``pot'', and are creating our products almost entirely out of mental effort. We have no employees, and our fixed costs are almost negligible. We will have no debts to anybody (I am a fanatic about this), and our capital investment will be a relatively small percentage of net worth. The software business is just about optimal from the standpoint of product liability. Programs blow up in people's faces only figuratively, and unlike most other things, software is usually sold with no warranty, or one limited to refund of the purchase price within, say, 30 days.
As a result, the liability exposure of a partner in this venture is about as small as could be possible in any business. Basically, if we reach the point where the bank account is drawn down to zero and we haven't sold anything, we fold up our tent and go back to the salt mines. It's hard to imagine how you could lose more than your investment in this kind of venture. Thus, being a general partner is not the risky thing it is in a real estate venture where you're signing up to be liable for a chunk of a $30 million floating rate construction loan on a building for which there may be no demand when it's finished 24 months from now. I don't think the liability issue here is something to lose sleep over, and I personally don't care if I'm a limited or general partner. I do realize that from your questions some of you are concerned about it, so I've tried to beat the issue to death looking at it from all sides here. That's not to say that any issue in forming a company is unimportant, but I think that you have to look at it in the light of the nature of the business, and in this case liability is not an overwhelming problem.
Editor: John Walker