When you decide to start a business together, we're here to help
- When two or more people agree to go into business together, they've created a general partnership.
- You don't have to file paperwork with the state to start a general partnership, but we can help with other important steps.
A general partnership is created any time two or more people agree to go into business together, whether or not they have a written contract. It's a good idea to formalize the details in a partnership agreement that specifies each partner's rights, responsibilities, and share of the profits. Once partners are engaged in a business, each partner is personally liable for the actions of that business, including the obligations of the other partners. There are no shields against personal liability. A general partnership doesn't pay income taxes. Instead, profits and losses flow through to each of the partners, who are responsible to report it on their personal income tax returns.
Frequently Asked Questions:
What is a general partnership, and how do I enter into one?
A general partnership is created any time two or more people agree to go into business together. There's no legal requirement for a contract or written agreement when you enter into a general partnership, but it's best to formalize the details of the arrangement in a written partnership agreement.
What are some advantages and disadvantages of general partnerships?
General partnerships are easy to create and flexible to manage. Unlike corporations and LLCs, you won't have to file formation documents or annual reports with the Registrar General. The general partnership itself does not have to pay income tax.
However, general partners are personally liable for the business, including all debts and liabilities of the other partners. Because of this potential liability, general partnerships may have trouble attracting investors or buyers.
How are general partnerships taxed?
A general partnership does not pay any income taxes, although it may be required to file a tax return. Partnership income "passes through" the business to the partners. Each partner then reports his or her share of business profits or losses on an individual tax return.
How are general partnerships managed, and who is liable for the business?
Generally, the partners have equal authority to manage the business. However, the terms of a general partnership are up to the partners themselves. It's smart for partners to work out the details in a written partnership agreement—particularly since all of the partners will share liability for the business. Without a written agreement, the default laws of your land will govern the partnership.
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