Why Should You Consider Forming a General Partnership?
By: Barry E. Haimo, Esq.
April 30, 2021
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. In this post, we’re going to focus on some of the reasons to form a partnership.
What exactly is a partnership?
Quite simply, it is a simple agreement between one or more owners. 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 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 for the business. In other words, the personal income taxes the partners pay are the business taxes.
You Want Your Business Up and Running in a Week: Setting up a general partnership is relatively easy and requires virtually no paperwork.
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 partnerships are very flexible, and the structure and operation of the business can be solely controlled by the general partners.
You Want Flexibility, Beginning to End: Flexibility and ease applies to more than just the formation of a general partnership. If one of the partners wants to dissolve the partnership, the process is simple. General partnerships 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 are typically found when the partners are themselves business entities. This is done 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 instead.
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.
Originally published 1/26/2017. Updated 4/30/2021.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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