Presentation by Mike Cooley

II. GENERAL PARTNERSHIPS

A general partnership involves two or more persons that agree to create a business and to jointly own the assets, profits, and losses. All of the partners share equal rights and responsibilities in managing the business.

The business is not a separately taxed entity, but rather, similar to a sole proprietorship, a conduit through which the profit or losses of the partnership flow through to the partners. There are two basic types of partnerships (i.e., general partnership and limited partnership).

A limited partnership has at least one general partner and at least one limited partner. The general partner is responsible for managing the business affairs, while the limited partner typically provides capital to the partnership. As in a general partnership, each general partner assumes full personal liability for the debts and obligations of the partnership. A limited partner’s liability is tied to the limited partner’s investment in the business.

Major Benefits of General Partnerships

• A partnership is a flexible form of business and relatively easy to set up.
• The partners decide the structure of the organization and the distribution of profits and losses, generally by means of a formal, written partnership agreement.
• A partnership allows more than one owner, unlike a sole proprietorship.
• The profits and losses "flow down" from the partnership to the individual partners through the Schedule K-1. Each partner is responsible for paying taxes on his or her distributive share.
• A partnership exists as long as the partners agree it will, and as long as all of the general partners remain in the partnership, although there are generally provisions for continuing the partnership on the death or other withdrawal of a general partner.

Major Drawbacks of General Partnerships

• In a general partnership, each general partner is personally liable for all business lawsuits, debts, and obligations of the partnership, regardless of his or her percentage partnership interest.
• All profits are allocated as compensation, and thus subject to payroll taxes.