Advantages & Disadvantages of a General Partnership

Partnering up for business though exhilarating, can also be a frightening prospect. Unlike in a limited company, if there’s a problem in a partnership, it could end up being really taxing on an emotional and financial level. There are a lot of things to consider including the company’s resources and the relationship between the individuals who partnered up. So, it is important to know the advantages and disadvantages of being in a General Partnership before taking that decision.
 
Limited and general partnerships are two categories partnerships fall under. General partnership is when two or more individuals partner together and manage all aspects of the business operations, and are held responsible for any debts or decisions. Every single partner contributes money, talent, time and they all share the profits and losses.
 
A limited partnership is where both limited and general partners can be involved. Limited partners are held liable for the responsibilities of the business only or whatever terms agreed to when forming the partnership. That’s the key difference.
 
Let’s learn more about the benefits of a general partnership:
 
Straightforward taxing: One of the best aspects of general partnership is the tax benefit it offers. When businesses are set-up as partnerships, there are no taxes involved. The turnover – losses and profits are transferred to the partners. The partnership does file tax returns declaring the profits or losses, though taxes aren’t paid. Partners should file their returns showing their share of losses or profits – partners aren’t considered as employees. You can check the IRS Partnerships Website for more information regarding taxing for partnerships.
 
Reduced paperwork:  General partnership documentation is easier, economical and the paperwork is lesser. The partnership agreement should be filed at the county where business is conducted. Also, the agreement should clearly state the business purpose and list responsibilities for every partner. If you aren’t sure about how the agreement is done, you could consult an attorney.
 
Downsides of general partnership:
 
Legal obligation: When a business is registered as a partnership and not corporation, the business debts, obligations and any liabilities will be considered as a personal liability of the partners. This means, if the business is sued, or goes into bankruptcy, the fines thus levied will be the responsibility of the partners. In most cases, any partner can take decisions on behalf of all the partners and everyone is responsible for the decisions, irrespective of whether it was taken by one partner or partners as a whole.
 
Management: Every partner has a say in the business and have personal interest and link to the business and money invested. This can get tricky when investments are done by one of the partners from their pockets, and there’s a reimbursement claim. What about scenarios where the partners aren’t in agreement of the purchase or investment done or decisions taken? Unless the guidelines are clear-cut and rules are defined for every scenario when forming the partnership, there could be problems between partners. ​