A general partnership is a type of business entity in which two or more individuals, known as partners, come together to operate a business. In this type of business, two or more partners share ownership and management responsibilities. Regardless of the partners' contribution to the business, all of them equally share in the profits and losses of the business, and each partner is personally liable for the debts of the business. A general partnership is easy to set up and operate, and has less legal requirements than other types of businesses like corporations or limited liability companies (LLCs). In a general partnership, each partner has an equal say in the management of the business and contributes equally to its operation. Partners can make decisions about the business by unanimous agreement or by majority vote. Each partner also has the right to inspect and copy any books and records of the partnership. In detail, a general partnership has the following conditions: There are several advantages to forming a general partnership: There are also several disadvantages to forming a general partnership: To form a general partnership, partners typically enter into an oral or written agreement that dictates how they wish to run their business and what each partner's responsibilities are. An attorney can be helpful in creating the document that details this agreement, but it is not required for all partnerships. The following steps may be taken in forming a general partnership: A business name for a general partnership can simply be the name of the partners, such as "Smith and Jones General Partnership". The name can also include a trade name (the name under which the business will conduct its operations), provided that it is registered with the state. In order to register a general partnership with the state, the partners must file articles of organization with their secretary of state's office. This document will include basic information about the partnership, such as the names and addresses of the partners, the business name, and the purpose of the business. An operating agreement is not required for all partnerships, but it is a good idea to have one in place. This document will outline how the partnership will be run, including how profits and losses will be shared, how decisions will be made, and how disputes will be resolved. Partnership taxes are also covered in the operating agreement. This document should be updated as needed to reflect any changes in the partnership. A partnership agreement can be oral or written, but it must include the names and addresses of the partners as well as their percentage of ownership in the business. All partners should review and sign the document to indicate their consent to its terms. Depending on the business, additional licenses, permits, and zoning clearances may be needed in order to operate. For example, a business that sells products would need a seller's permit from the state, while a restaurant would need a food handler's permit. It is important to check with the appropriate agencies to determine what is required for your specific business. All businesses, including partnerships, are required to have an EIN. This is a nine-digit number that is used to identify the business for tax purposes. The EIN can be obtained from the IRS website. A general partnership is a simple and easy way for two or more people to start a business together. The advantages include personal liability protection for partners, shared profits and losses, access to all records of the partnership, and voting rights on major decisions. The disadvantages include partners being liable for the debts of the business, no legal standing as a separate entity, no protection from personal liability for other partner's actions, and the possibility of being forced to sell one's share of the business. General partnerships are not for everyone, but they are still the most common type of business ownership. When deciding to form a general partnership, it is very important that all partners read and understand their legal responsibilities to the business.How Does a General Partnership Work?
Advantages of a General Partnership
Disadvantages of a General Partnership
How to Form a General Partnership
Choosing a Business Name
Registering With the State
Creating an Operating Agreement
Signing the Partnership Agreement
Securing Licenses, Business Permits, and Zoning Clearance
Obtaining an Employer Identification Number (EIN)
Final Thoughts
How many partners can I have?
You can have as many partners as you want in your general partnership. However, the number of partners will affect the decision making process and could make it difficult for a general partnership to continue in operation if a partner dies or becomes incapacitated.
How much does it cost to start a general partnership?
In most cases, creating a general partnership is free. There are some fees associated with registering your business name and applying for any necessary licenses or permits.
Is there an age requirement for someone wanting to form a general partnership?
There is no federal age requirement in forming a general partnership. However, state rules vary when it comes to minors owning businesses. Certificates of emancipation may be available for those who want to own their own business while still under their parents control.
Do I need to file paperwork with the state to create a general partnership?
No, you do not need to file paperwork with the state to create a general partnership. However, you will need to register your business name and apply for any necessary licenses or permits.
Can I have a foreign partner in my general partnership?
Yes, you can have a foreign partner in your general partnership as long as they are legally allowed to do business in the United States. Partnership taxation is a complex area and we suggest talking to an accountant before starting a general partnership.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.