General Partnership

A general partnership (GP) is formed when two individuals have an intent to do business as co-owners (rather than principal/agent relationship e.g. employer/employee).  There are no formalities required to form a GP.  It is generally the sharing of profits, losses, and control that determine whether or not a general partnership has been formed.  However, the presumption of a GP can be rebutted by factors that indicate that a GP was not formed.

General Partnership Liability

Each GP is personally liable for the debts of the partnership and jointly and severally liable for obligations arising due to a contract or a tort.  Partners are also vicariously liable for torts committed by each partner and their employees.

Tax Consequences

A GP is taxed similarly to a sole proprietor.  The profits and losses are shared based on the agreement (if there is one) or equally and “passed through” to the individual.  Thus, a GP is not subject to double taxation like a corporation.

See a CPA/tax consultant to understand how the income from a GP would affect your individual taxes.

Pros

• Easy to Start
  • Simply hold yourself out as a partnership
• Low Initial Start-up
  • Similar to a sole proprietor you may need a business license and/or a “doing business as” (DBA).

Cons

• Unlimited Liability
  • A partner is personally liable for the debts, contracts, and torts of the partnership and any employees’ actions done while in the scope of employment.
• Limited Alienability
  • There is no way to transfer an interest in the partnership, thus the partnership dissolves when one party no longer wants to be partners.

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