Business Formation: General Partnership

A partnership is a business owned by two or more persons, who associate together to carry on the business as a partnership.

  -Partners share equally in the right and responsibility to manage and control the business.

  -The profits and losses of the business pass through to the partners as agreed upon in the partnership agreement.  If the distribution of profits and losses are not agreed upon in the partnership agreement then profits and losses are shared equally among partners.

  -Income and expenses of the partnership are reported on federal and state information tax returns, and filed by the partnership.

  -The partners are taxed on their respective share of the partnership’s profits at their individual income tax rates.

  -Certain management decisions require unanimous consent between partners.

  -The transfer of a partner’s economic interest in the partnership is determined by the partnership agreement, or by statute if there is no partnership agreement.  For reasons such as transferring interest in the partnership, it is recommended that the partnership agreement be in writing.

  -To avoid the risk of losing more than the owners have put it, they should obtain adequate insurance.  The major disadvantages of a general partnership are unlimited personal liability and joint and several liability among the partners for each other's actions.