What is a General Partnership?
THE BASICS
- SHARED POWER, SHARED RESPONSIBILITY

- OWNED BY TWO OR MORE PARTNERS WHO SPLIT BOTH PROFITS AND DEBTS 

- DRAFT AND SIGN A PARTNERSHIP AGREEMENT TO ESTABLISH THE "GROUND RULES" 

- PARTNERS CAN COMBINE RESOURCES FOR A STRONGER BUSINESS. 
 
- YOU ARE PERSONALLY LIABLE FOR THE BUSINESS, INCLUDING ACTIONS OF OTHER PARTNERS. 
 
- PASS THROUGH TAXATION - PROFITS ARE DIVIDED BETWEEN PARTNERS AND REPORTED ON THEIR PERSONAL INCOME TAXES. 
 
- SUBJECT TO SELF-EMPLOYMENT TAX, 
YOU ARE TAXED AS THE OWNER AND AGAIN AS AN EMPLOYEE
KEY FEATURES
  • A partnership is similar to a sole proprietorship, but includes the idea that two heads (or more) are better than one. But remember, shared power means shared responsibility.
  • Owned and operated by multiple individuals known as partners. Each partner directly shares in any profits, losses or liabilities.
ADVANTAGES
  • Formation - A partnership is easy and inexpensive to setup, as there are very few formal legal regulations.
  • Partnership Agreements - Though the paperwork for forming a partnership is limited, it is strongly recommended that partners sign a “partnership agreement.” This document details all of of the rules and obligations of each partner and is a necessity to avoid disputes.
  • Combining resources – The partners share in the financial responsibilities of the business, meaning that there is a larger amount of money to work with.
DISADVANTAGES
  • Unlimited Liability – Like a sole proprietorship, the owners all share the risk of personal liability.
  • Responsibility - You are not only responsible for your own actions, but also the actions of your partners.

    For Example     If one of the owners makes a poor business decision resulting in a debt or liability, the personal assets of all the owners may be used to pay for it. This means you could lose your home to a bad idea that wasn't even yours! 
  • Partner Disputes - Since decision making and finances are all shared among multiple individuals, there is the possibility of disputes amongst partners. This discord could cause a gridlock in operations and ultimately hurt your chances for having a successful business.
TAXATION
  • Pass-through Taxation – Each partner's portion of the income generated by the business is taxed as their personal income.
  • Self-employment Tax - While the business itself is not taxed, all partners are subject to the taxes of both an employer and an employee. This results in owners paying double the amount in FICA taxes.
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