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General Partnerships: Definition, Features, and Example

File Photo: General Partnerships: Definition, Features, and Example
File Photo: General Partnerships: Definition, Features, and Example File Photo: General Partnerships: Definition, Features, and Example

A general partnership?

A general partnership involves two or more persons sharing a jointly owned firm’s obligations, assets, earnings, and financial and legal liabilities. In general partnerships, participants assume personal liability for potentially infinite amounts. Liabilities are not limited, unlike limited-liability partnerships or companies. Partners are liable for debts and may lose assets. Partners are also liable for corporate debts.

General partnerships are pass-through entities, meaning partners declare their share of earnings or losses on their tax returns. The partnership is tax-free.

Understanding General Partnerships

General partnerships operate unincorporated, and general partnerships don’t need state registration to operate lawfully.

General partnerships allow participants to form firms they see as suitable. This allows partners to manage operations better.

This enables faster and more decisive management action than companies, which must deal with several bureaucratic layers that slow the adoption of new concepts.

A general partnership must meet these criteria:

  • At least two people must participate.
  • Any partner must accept personal liability for any partnership responsibilities.

General Partnership Aspects

Agreement of Partnership

The partnership should have a written agreement, although informal agreements are legal. The partnership agreement covers corporate governance, partner rights and obligations, and profit distribution.

It can also address what happens when a partner departs, dies, or becomes unable to couple. The agreement may transfer a dead partner’s stake to surviving partners or a successor.


The partnership should include a management and control agreement.

If the partnership lacks a management agreement, it can follow the Revised Uniform Partnership Act (RUPA) used in most states. The statute governs partnerships. This defines:

  • How partnerships form
  • Partner rights and responsibilities
  • Partnership assets and liabilities
  • Fiduciary responsibility of partners and partnerships
  • Sharing profits and voting rights

Individual Choice

In a general partnership, any partner can independently strike legal agreements and commercial arrangements, binding all other partners.

Unsurprisingly, such actions can cause conflict. Thus, many successful general partnerships include dispute resolution in their agreements.

In certain circumstances, partners only make critical decisions with a consensus or majority vote. Partner-appointed non-partners manage partnerships in other circumstances, like a company’s board of directors. When all partners have unlimited responsibility, even innocent actors might be financially responsible for improper or unlawful conduct; hence, a comprehensive agreement is required.


Partners get profit distributions instead of salaries. These payouts should follow the partnership agreement’s profit distribution. RUPA distributes earnings evenly if the partnership has no agreement.

Reinvesting partnership funds is another option.

Joint Obligation

General partners are jointly liable for business debts and liabilities. Every partner accepts unlimited personal accountability for their conduct, that of other partners, and that of staff.

Therefore, partners have joint liability for damages awarded in a legal action against the partnership.

Some states allow joint and multiple liability, where one partner can sue another for their acts. Partners must then determine their debts.


Partner fiduciaries operate in the partnership’s best interest. Protecting partners and the business requires special fiduciary obligations. A partner who breaches a fiduciary obligation may be personally accountable for partnership harm.

The partnership agreement might state extra fiduciary obligations, but the primary ones are:

Good Faith and Fair Dealing

Partners must be honest and fair in all partnership activities.

Loyalty duty

Partners must avoid personal, partnership-harming activities. They must prioritize the relationship above themselves. Personal interests may interfere with the partnership; thus, they must avoid them.

Duty of Care

Partners must manage partnership matters carefully and professionally. Importantly, they are not accountable if a partner behaves reasonably and in good faith and causes harm.

Duty to Disclose

Partners must share knowledge about business risks and repercussions with other partners. They must also declare conflicts of interest.


As indicated, general partnerships pay no business income taxes. Pass-through businesses provide revenue and losses to partners. Partners must record their gains and losses on their tax filings and pay taxes.

Partners must pay taxes on retained earnings or money that the partnership has not distributed.

General partnerships must submit IRS Form K-1 to each partner by March 15. K-1s show partners’ business revenue, losses, credits, and deductions. Each partner files their taxes using K-1 information. The IRS does not need the K-1 with the tax return.

Partner tax returns must include a Schedule SE because partnership revenues constitute self-employment income. This form calculates self-employment net earnings tax. The Social Security Administration (SSA) uses Schedule SE data to calculate Social Security and Medicare benefits.

The general partnership must submit Form 1065 to the IRS by April 15. An informative return, Form 1065, requires no payment.

General Partnership Example

Service providers and people looking to collaborate have chosen general partnerships, often because of their simple structure, low cost, and easy setup.

General partnerships are joint in law, medical, and architectural businesses. Spouses and other family members form general partnerships to operate a firm.

Pros and Cons of a General Partnership


  • Setting up a general partnership is cheaper and more straightforward than forming a corporation or limited liability partnership.
  • Paperwork is lower. In the US, completing partnership paperwork with a state is not essential, but local registration papers, permits, and licenses may be required.
  • Pass-through partnerships pay no taxes.
  • No annual or external financial reporting is required.
  • Dissolving a general partnership is easy.


  • Personal guilt is infinite. Creditors can confiscate a partner’s personal property.
  • Partners share financial and legal responsibility for each other’s (and workers’) activities.
  • Disputes, except for good partnership agreement planning, can be challenging and devastating for the firm.
  • Business complexity, dangers, personal guilt, and partnership structure might rise over time.

Can a general partnership be an LLP?

Not precisely. General and limited liability partnerships are pass-through entities. Partners may be personally liable for financial and legal responsibilities in a general partnership. Like a limited liability firm, a limited liability partnership restricts responsibility to the partner’s investment. The government cannot seize their personal property.

What are the advantages of a general partnership?

General partnerships are easy to form. People may form a partnership and start working right away. A general partnership seldom has to register with its state of business. Incorporation is optional. It dissolves immediately when one partner departs. Though its partners pay taxes, it doesn’t.

General Partnership owners?

Partners own it. The partnership agreement should list the owners and their profit share percentages.

The Verdict

At least two owners or partners share business management duties in a general partnership. Partners are personally liable for any corporate debts and responsibilities. Partners file individual tax returns and pay taxes on their business profits and losses. The partnership is tax-exempt.

General partnerships are famous since they’re easy to form and dissolve. As it expands and faces more commercial risk, a general partnership may need to reorganize to restrict participants’ financial obligations.


  • Each member of a general partnership is liable for the business’s debts, obligations, and assets.
  • Participants may lose their assets if the partnership fails due to limitless liability.
  • Partners should write an agreement.
  • Unlike corporations, general partnerships are cheaper to create.
  • They are pass-through businesses, meaning partners declare income and losses on their tax returns.

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