A General Partnership, or simply a Partnership, is a business entity of two or more persons formed by agreement among the Partners. A General Partnership is viewed as being one and the same as its owners.Â
A General Partnership does not include the legal liability protections of a Corporation which means that the assets of all Partners can be taken in a lawsuit or be targeted to settle debts should the Partnership become insolvent. On the other hand a General Partnership offers freedom from the bureaucracy associated with Corporations.
There is little formality involved in creating a General Partnership. There is no need to file papers with the state.
In fact, if someone can establish that you are in business with somebody else, then there is a General Partnership. The intention or lack thereof of having a formal Partnership is not important.
Each Partner is involved in the day-to-day operations of the business.
All Partners are personally liable for any legal actions and debts of the General Partnership. All General Partners are responsible for legal actions and debt undertaken by any other Partner in normal business proceedings.
Any Partner can bind the entire business to a contract or business deal.
A Partnership Agreement may specify how profits (and losses) are distributed and what will happen upon the death of a General Partner.
Unless specified in a Partnership Agreement, by default profits (and losses) are shared equally among the Partners; and a general Partnership will terminate upon the death of a general Partner.
A General Partnership has only one level of taxation. A Partnership is a tax-reporting entity, not a tax-paying entity. Profits pass through to the owners and are divided in accordance with the Partnership Agreement. There are no restrictions on how profits are allocated among Partners. Profits may be allocated according to which Partners have the best tax rates.
A General Partnership is in contrast to a
Limited Partnership, which has both General Partners and Limited Partners within its Partnership structure.