26 Jan Why Form a General Partnership?
By: Barry E. Haimo, Esq.
January 26, 2017
Why Form a General Partnership?
Once you’ve developed the idea to start a business, you have some defining choices and decisions ahead of you. Let’s start with the framework of your business.
With multiple owners, you can choose to incorporate your business or form a partnership. A partnership is a simple agreement between one or more owners. Even if you choose this form of business, you have more forms to choose from. If you are looking for control and flexibility within your business and tax benefits, a general partnership may be the best choice.
Consider forming a general partnership if any of the following apply to your goals and your business model:
You Don’t Want the Business to Pay Income Taxes: General partnerships, as a business, do not have to pay income tax. All of the general partnership’s profits and losses run through the partner. A separate tax return must be filed for the general partnership, but partners are not treated as employees and income is not taxable.
You Want Your Business Up and Running in a Week: Setting up a general partnership is relatively easy and requires virtually no paperwork at a minimum
You Want an Inexpensive Structure: In addition to the ease of formation, general partnerships are also relatively inexpensive to form. General partners are, however, responsible for putting capital into the general partnership.
You Want Control of Management and Profits: General partnerships are defined by their ability to split management responsibilities between all partners. Whether this is an equal split or an agreed split between multiple partners, each party controls their share in the partnership. Be aware that with this control comes liability and responsibility. As a result, all partners are personally liable for any losses or debts that the general partnership takes on.
You Have Specific Aspects of the Business You Want to Control: If you are a general partner, you don’t have many restrictions or requirements for management duties. General partnership are very flexible, and the structure and operation of the business can be solely controlled by general partners.
You Want Flexibility, Beginning to End: Flexibility and ease does not only apply to the formation of a general partnership. If one of the partners wants to dissolve the partnership, the process is simple. General partnership are typically more suitable for short-term projects, but a short-term business plan should not be deterred from starting a general partnership.
Similar Business Models
General partnerships have their advantages, but also come with drawbacks. For example, as mentioned above, general partners are personally liable for losses and debts. This is not always the case in every type of partnership.
General partnerships typically are only found when the partners are themselves business entities to protect the shareholders. Not sure whether a general partnership is right for you? Different types of partnerships offer different roles and responsibilities for partners, management structures, and benefits. Read our other posts on why you may want to form a joint venture or limited partnership.
Once you’ve chosen a business model, it’s time to get started. Contact an experienced Florida business planning attorney to get your business started on the right foot.
Barry E. Haimo, Esq.