Benefits of a General Partnership
A general partnership can provide business with structure and control in addition to other benefits. In most general partnerships, profits are shared equally among the partners. Typically, partners will sign a contract at the commencement of the general partnership, which outlines how profits and losses will be divided. As asset protection vehicles, general partnerships are not an ideal choice, since they do not offer limited or severable liability. Each partner is responsible for the actions and liabilities of every one of the other partners. A general partnership is intended to distribute risk as well as managerial flexibility.
Management Structure of a General Partnership
In a general partnership, each partner has an equal right to participate in the management and control of the business. The partners may resolve disagreements by majority rule or by developing a voting system or another form of dispute resolution. Some partnerships, though not many, allow certain elected members to manage the partnership like a company board. One popular benefit of a general partnership is freedom from the bureaucracy associated with other business structures, like corporations.
Tax Benefits of a General Partnership
Just as with a sole proprietorship, a partnership has only one level of taxation. A partnership is a tax-reporting entity, not a tax-paying entity. Profits pass through to the owners and are divided in accordance with what is specified in the partnership agreement. There are no restrictions on how profits are allocated among partners as long as decisions are motivated by sound economic reasoning. This means partners can make choices about how to allocate income based on which partners have the best tax rates. As a group, there may be some tax credit benefits as well. A tax attorney can help you determine the potential asset protection and tax benefits of your intended partnership.
In a general partnership, the owners’ responsibilities to one another are clear. Each partner owes a contractual duty to the rest and can be held responsible for violations of the partnership agreement. Each partner also owes a fiduciary duty to the organization, and should set aside personal interests for those of the general partnership.