What is a General Partnership?
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In business, when you hear the word partnership, it generally refers to a general partnership. In a general partnership, there are two or more partners. Each is liable for any debts or judgments taken on by the business. There is no limited liability, which means all the partners’ assets can be taken in a lawsuit or be targeted to settle debts should the partnership become insolvent. Any partner can be sued for the full amount of business debts.
Another attribute of the general partnership is that every partner has so-called “agency powers,” which means any partner can bind the entire business to a contract or business deal.
The benefits of the general partnership is structure and control. Unless by other agreement, profits are shared equally among the partners. Usually, there is a contract of some sort that outlines how profits and losses will be divided.
In a general partnership, each partner has an equal right to participate in the management and control of the business. The partners have the option of resolving disagreements by majority rule or by developing a voting or other dispute resolution system. Some partnerships provide for certain electees to manage the partnership like a company board. However, many do not. One reason for forming a general partnership is freedom from bureaucracy associated with other business structures, such as corporations.
The partners have near complete discretion over who can become a member of the partnership. Unless otherwise provided in the partnership agreement, no one can become a member of the general partnership without the consent of all partners.
A partner can assign their share of the profits and losses and right to receive distributions. This is called a transferable interest. This interest can be applied, with agreement, towards paying to satisfy a judgment against that partner.
Another benefit of the general partnership is that it does not take much paperwork to start one. There is no need to file papers with the state as with more specific entities like corporations or limited liability partnerships. All the partners need to do is draft a general partnership agreement.