Starting a business in the City of Angels is no small feat. Often, a business venture requires multiple legal entities working together to guarantee success.

Whether you are a business owner or a practicing attorney in Los Angeles, understanding the definition of a general partnership is important if you are looking for a legal framework for a startup or simply need to refer to it during a deal negotiation.

In this article, we will answer frequently asked questions about the general partnership definition as it applies to businesses in Los Angeles. We will cover what a general partnership is, the different types, how to form a general partnership in LA, the benefits to a general partnership, the liabilities associated with it, and more.

What is a General Partnership?

A general partnership is an outgrowth of the traditional partnership, which is an arrangement between individuals that agree to form a business to conduct a profit-seeking activity. In this setup, the partners (also known as members, managing partners, etc.) are jointly and severally liable for applicable debts and obligations as well as profits and losses of the business.

The most important distinction between a general partnership and other commonly used business forms such as an LLC or C-Corp is that a general partnership does not provide any liability protection to its members or partners. This means that all partners can be held responsible for any acts or omissions of any other partner.

Types of General Partnership

Despite its lack of formal regulation, there are several types of general partnerships available in Los Angeles. The most common arrangements include the following:

• Simple (or Regular) General Partnership: This is the most popular form of partnership as all partners share equally in the operation and liability.

• Limited Liability General Partnership: In this partnership, certain partner(s) are not exposed to certain liabilities, and losses are spread more evenly amongst all the partners.

• Syndicate Partnership: A syndicate is a large general partnership that involves a large amount of funding and a lot of individual investors who act as general partners.

• Joint Venture: A joint venture is a business relationship between two or more existing businesses that agree to cooperate on a temporary basis in order to share a specific task.

How to Form a General Partnership in Los Angeles?

In order to form a general partnership in Los Angeles, you must first register your business with the state of California. While there is no mandatory filing fee in CA, it is highly recommended that you register your business to avoid any contractual or financial consequences should one of your partners not uphold their obligations.

Once registered, you must draft a partnership agreement, which outlines the each partner’s roles and responsibilities, duties and liabilities, the initial capital contribution and how profits and losses are to be distributed. This agreement should also include other details such as:

• The term of the partnership

• The dissolution of the partnership

• Dispute resolution

• Taxes filing and filing policies

• The contribution of capital and

• The roles of each partner

Having a well-crafted partnership agreement is critical to ensure that each partner's rights are protected and clear expectations of responsibilities are set at the outset.

Benefits of a General Partnership

Despite having several cons, a general partnership can have several benefits over other types of business entities. This includes:

• Cost – since there is no need to file with the state, you can save a tremendous amount of time and money compared to other legal business entities.

• Simplicity – since one must only register with the state to form a general partnership, the process on the whole is quite straightforward and easy to manage.

• Tax Benefits – due to the tax advantages offered by a general partnership, one can enjoy a lower overall income tax rate in comparison to other legal entities.

• Flexibility – it is easier to add and remove partners from a general partnership as compared to other legal entities.

Liabilities of a General Partnership

One of the biggest benefits of general partnerships in Los Angeles is also its major con. Since the members of a general partnership can be liable for each other’s negligence, the risk of liability can be very high. Furthermore, since all partners are equally liable for the obligations of the partnership, creditors can attach personal assets of any member in the partnership to collect debts.

Ending a General Partnership

If a general partnership decides to dissolve, the members must seek legal counsel as it varies from state to state, and in California, all partners in a general partnership must wind up the affairs of the partnership and comply with all relevant regulations. In the case of disagreements between the partners, the partnership agreement may need to be amended or the partnership may need to be prominently dissolved.

Topics:

General Partnership Definition,

Types of General Partnership,

How to Form a General Partnership in Los Angeles