General Partnership in Business | Examples & Advantages of General Partnerships – Video & Lesson Transcript | Study.com
What is a partnership business? Learn the general partnership definition and see examples of the different types. Compare the advantages and disadvantages. Updated: 10/15/2021
Ashley has a JD degree and is an attorney. She has extensive experience as a prosecutor and legal writer, and she has taught and written various law courses.
Christopher W. Fortney, MSFE Christopher is a Colorado native who has been entrepreneur for over 28 years. During that time, he has spent 5 years in teaching and instruction. In 2012 he wrote the first-ever Paintless Dent Repair training curriculum, approved by the state of Colorado, and taught that curriculum as department chair at the iPRO Institute in Colorado Springs, Colorado. In 2016 he received an Associate Degree in business from the Community College of Denver. In 2018 he graduated cum laude and was awarded a Bachelor of Science degree in economics from Colorado State University. In 2020 he received a Master of Science in Finance and Economics (MSFE) from West Texas A&M University.
What is a General Partnership?
There are many types of business structures, each with specific attributes that detail its requirements, benefits, and limitations. Each of these structures has certain characteristics that help distinguish one business type from another. Some businesses require registration with the Internal Revenue Service (IRS) and have individual entity status, and some have limited liabilities. In general, a partnership is an agreement between people or groups that share cooperation, effort, and responsibility in the aim of mutual benefit.
So, What Is a General Partnership Business?
Although there are several types of partnership structures, the General Partnership definition is the starting point of all partnership structures. This is because they all share the same basic traits but have additional stipulations. These additional provisions change the General Partnership from its specific definition. Limiting one or more partners in some way or structuring the partnership in such a way to limit the partnership’s overall liabilities are a few examples of these changes. Of all business structures, General Partnerships are among the most common. They are also one of the least complicated because they have so few restrictions.
Partnership Business Agreement
General Partnership Definition
A General Partnership is a legal business agreement between two or more contributing individuals, each sharing in both profits and losses, paying taxes on income received, and having unlimited liability of the firm.
Defining attributes of a General Partnership
Consider the individual characteristics that define the structure of a General Partnership:
Attribute 1: A legal agreement between two or more people
General Partnerships are easy to setup. Nothing more than an agreement between the members is legally required to get started.
Attribute 2: Conducting business under specific terms
For General Partnerships, the liabilities and profits are equal among all partners, regardless of perceived or actual individual contributions.
Attribute 3: Each member contributes something of value
This could be anything of value: money, special skill, knowledge, property, labor, or any other asset or contribution.
Attribute 4: Each member benefits from returns
All members receive a share of the profits.
Attribute 5: Each member is accountable for losses
All members share the responsibility of all debts and losses.
Attribute 6: Each member pays taxes on any income received from the partnership.
All members pay tax on their individual share of income. The business is not taxed.
Attribute 7: Each member shares unlimited liability
Losses are not limited by individual ownership share.
Example 1: If all partners but one were to suffer bankruptcy or pass away, the remaining member would be responsible for 100% of all firm liabilities.
Example 2: If the firm were to be found liable for a loss beyond its insured limits and beyond total firm value, compensation would not be sought solely from the partnership as an entity, but from the personal assets of the individual members of the partnership for all liabilities beyond the value of the firm.
What Does It Mean to Be in a General Partnership Business?
A person joins a General Partnership by formally agreeing to certain terms. As a member of this organization, the individual must contribute something of value to the business. When the firm collects revenue beyond the value of its debts, the partner receives an equal share of that surplus. When receipts fall below the business’ liabilities, the partner is responsible for an equitable share of this debt. The member will pay income taxes on any money received from the business in the same proportion as the other partners. Lastly, individual member liability for the firm is unlimited.