General partnership

/General partnership
General partnership 2019-02-19T11:14:36+00:00

When two or more individuals decide to go into business together, one of the business forms they can choose is a partnership or a general partnership (GP). Partnerships are easy to create since there is no need to file a certificate with the state, are less expensive than other options and partners have joint liability and joint authority.

A general partnership requires a partnership agreement which generally includes partners’ rights and responsibilities, share of profits and, other details regarding ownership. A decision that also needs to be made when forming a partnership is if you will conduct business in the names of the partners or file to register and use a DBA (“doing business as”). The business name can be used to open a bank account and also to conduct business.

If you are part of a group of two or more people that have agreed to go into business together, then you are into a partnership. While a contract or a written agreement is not required by law, it is always best to have a formal agreement defining the partnership. A written agreement is important especially since in a general partnership, all partners are liable for business claims and debts.

The main advantages of a partnership are:

It is easy to create
It is easy to manage
Does not necessitate filing of formation documents or annual reports
The partnership itself does not pay income tax

An important disadvantage of general partnerships is that partners are personally liable for debts and also for the liabilities of other partners and might have a difficult time attracting investors.

Partnerships might be required to file tax returns, even if the general partnership itself does not pay income taxes. A general partnership is a “pass through” business entity which means that its incomes are passed through to the partners and are reported on their individual tax returns.

Even if the law does not require filing documents to create a partnership, it is better to draft a written agreement stating rights and responsibilities of all partners, especially since liability is shared in this case. Generally, all the partners in a general partnership have equal authority and rights in managing the business. In the absence of a written partnership agreement, your partnership will be governed by the state law. Make sure you know and understand all the legal requirements regarding this business structure before starting your activity, including liability and taxation particularities.