General Partnerships Advantages and Disadvantages

General Partnerships

General Partnerships Advantages and Disadvantages

Should I form a General Partnership?
General Partnership Advantages and DisadvantagesGeneral partnerships have many benefits, but perhaps the most compelling is the ease with which they can be set up and maintained. You do not have to register with your state and pay fees, as you do to establish a corporation or limited liability company.

General Partnerships - Partners divide responsibility for management and liability, as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently.

Advantages - General Partnership

  • Simple and inexpensive to create and operate
  • One big advantage of a general partnership is that you don't have to register with your state and pay a fee, as you do to establish a corporation or limited liability company. And because a general partnership is normally a " pass through" tax entity (the partners, not the partnership, are taxed unless you specifically elect to be taxed like a corporation) filing income tax returns is easy.

Disadvantages - General Partnership

  • Disadvantage of doing business as a general partnership is that all partners are personally liable for business debts and liabilities (for example, a judgment in a lawsuit).

Federal Tax Forms for Partnerships

  • Form 1065: Partnership Return of Income
  • Form 1065 K-1: Partner's Share of Income, Credit, Deductions
  • Form 4562: Depreciation
  • Form 1040: Individual Income Tax Return
  • Schedule E: Supplemental Income and Loss
  • Schedule SE: Self-Employment Tax
  • Form 1040-ES: Estimated Tax for Individuals

General Partnerships - Outline

General Partnerships: A form of business entity in which two or more partners engage in business for profit. For the most part, the partners own the business assets together and are personally liable for the debts of the business.

Sharing Profits: A partnership agreement will provide for the manner in which profits and losses are to be shared.

No Limit of Personal Liability for Losses: Each Partner is, jointly and personally liable for debts and taxes of the partnership. As an example, if the partnership assets are insufficient to satisfy a creditor’s claims, the partners’ personal assets are subject to attachment and liquidation to pay the business debts.

Liability for a Co-partner’s debts: Each general partner is deemed the agent of the partnership. If that partner was apparently carrying on partnership business, all general partners can he held liable for his dealings with third persons.

Liability for a co-partner’s wrongdiong: Each partner may be held jointly and severally liable for a co-partner’s wrongdoing.

Duration: Technically, a partnership terminates upon the death, disability, or withdrawal of any one partner. Partnership agreements provide for these types of events with the share of the departed partner being purchased by the remaining partners in the partnership.

Management and Control: In the absence of a partnership agreement, each general partner has an equal right to participate in the mangament and control of the business. Disagreements in the ordinary course of partnership business are decided by a majority of the partners.

Transferability: Unless otherwise provided in the partnership agreement, no one can become a member of the partnership without the consent of all partners. However, a partner may assign his share of the profits and losses and right to receive distributions.

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