what is a general partnership 
a general partnership is a business arrangement by which two or more individuals agree to share responsibilities assets profits and financial and legal liabilities of a jointly owned business in a general partnership partners agree to be personally responsible for potentially unlimited liability liabilities are not capped as they would be in say a partnership formed as a limited liability partnership or a limited liability company llc partners are responsible for the debts and the seizure of an owner s assets is a possibility furthermore any partner may be sued for the business s debts since a general partnership is a pass through entity where income flows straight to the owners each partner reports their share of partnership profits or losses on their personal tax returns the partnership itself is not taxed understanding general partnershipsgeneral partnerships are unincorporated businesses those who form a general partnership don t need to register their business with a state to function legally general partnerships offer the flexibility to structure businesses however partners see fit this gives those partners the ability to control operations more closely in turn this allows for more swift and decisive management action compared to corporations which must often deal with multiple levels of bureaucracy and red tape complicating and slowing down the implementation of new ideas a general partnership must satisfy the following conditions 1aspects of a general partnershipthe partnership should have a formal written partnership agreement though oral agreements are valid the partnership agreement details such things as the business s governing structure the partners rights and responsibilities and how profits should be allocated it can also state what should happen when a partner leaves dies or otherwise becomes unable to function as a partner for example the agreement may stipulate that a deceased partner s interest is transferred to the surviving partners or a successor ideally the partnership will have created its own agreement that addresses among other things the topic of management and control however if the partnership has no agreement that sets forth how the partnership should be managed and who should manage it it can follow the directives in the revised uniform partnership act rupa which most states have adopted the act provides a standard of governance for partnerships it defines 2in a general partnership each partner has the agency to unilaterally enter into binding agreements and business deals and all other partners are bound by the terms 3not surprisingly such activities may lead to disagreements as a result many successful general partnerships build conflict resolution mechanisms into their partnership agreements in some cases the partners agree only to proceed with major decisions if there s either a complete consensus or a majority vote in other cases the partners designate non partner appointees to manage the partnerships similar to a company s board of directors in any case broad agreement is essential because when all partners have unlimited liability even innocent players can be fiscally on the hook for inappropriate or illegal actions rather than a salary partners receive distributions from the partnership s profits these distributions should be in accord with the allocation of profits detailed in the partnership agreement if the partnership has no agreement profits should be equally distributed according to rupa mentioned above money that the partnership does not distribute to partners can be used for other purposes e g reinvested in the business partners in a general partnership have shared liability for the debts and obligations of the business every partner agrees to unlimited personal liability for their actions the actions of all other partners and those of any and all employees therefore partners have shared responsibility also known as joint liability for damages awarded in a legal action taken against the partnership 13joint and severe liability where someone can sue any partner for actions taken by others is also a possibility in certain states partners must then decide how much each owes partners have a fiduciary duty to act in the best interest of their partnership in fact specific fiduciary duties are key to protecting partners and the business itself a partner who breaches a fiduciary duty may be personally liable for any harm that breach causes the partnership while the partnership in its agreement can assert additional fiduciary duties the main ones are 45duty of good faith and fair dealingpartners must act honestly and fairly in all dealings that pertain to the partnership duty of loyaltypartners must not pursue personal activities that can harm the partnership they must place the partnership s best interests above personal interests and they must forego all conflicts of interest that may exist with the partnership due to those personal interests duty of carepartners must act prudently and competently when managing the affairs of the partnership importantly if a partner acts with reasonable care and in good faith they cannot be deemed liable should their activities cause unfavorable results duty of disclosurepartners must disclose to other partners any facts and other information they have about risks and consequences that concern or may concern the well being of the business if any conflict of interest arises they must disclose that too as mentioned previously general partnerships do not pay business income taxes as pass through entities they pass income and losses directly to individual partners the partners must then report their shares of profits or losses on their personal tax returns and pay any taxes owed 6partners also have to pay taxes on income earned by the partnership that is not distributed otherwise known as retained earnings a general partnership must complete and provide irs form schedule k 1 to each partner by march 15 7 a k 1 details each partner s share of business income losses credits and deductions each partner uses the information within the k 1 to complete their personal tax return the k 1 does not need to be sent with the tax return to the irs 8however because partnership earnings are considered self employment income partners will need to include a schedule se with their tax return 6 it is the form used to determine the tax due on net earnings from self employment information on schedule se is also used by the social security administration ssa to figure your social security and medicare benefits 9the general partnership itself must file form 1065 with the irs no later than april 15 form 1065 is an informational return and involves no payments 10example of a general partnershipgeneral partnerships have been the business entity of choice for individuals seeking to work together as well as various types of service providers that s often due to their straightforward structure low cost and ease of set up for example law firms medical practices and architectural firms often organize themselves as general partnerships spouses and other members of families who want to run a business together also set up general partnerships advantages and disadvantages of a general partnership