Frequently Asked Questions About General Partnership
Forming a General Partnership: Entering into a Legal Business Relationship3 min read
The formation of a general partnership allows you to enter into a business relationship with one or more parties to legally conduct business. Whether you're based in Los Angeles and are specifically looking for counsel that understand local regulations or operating within a different area or state, there are a few hurdles and legalities to consider when contemplating the formation of a general partnership. Here, we answer the frequently asked questions regarding general partnership and the perceived benefits of entering such an arrangement.
What is General Partnership?
A general partnership is a formally recognized business relationship between two or more individuals who share a common objective of running a business and aim to share the profits, or losses, associated with the business venture. Partners are responsible for the day-to-day management of the business, which can include functions such as hiring employees, conducting business transactions, managing finances, and handling legal matters.
What are the Tax Benefits of a General Partnership?
When it comes to forming a general partnership, an advantage is that partners are only taxed on their reported profits or losses from the business and not on their own personal income. Partners are not taxed on corporate income, meaning they can deduct some expenses from their reports. Additionally, partners may be able to take advantage of joint filing status, allowing them to minimize their individual tax liabilities.
What are the Legal Requirements of a General Partnership?
There are various aspects to consider when forming a general partnership, such as the terms and conditions in the agreement as well as business filings, which may be required by the local state or municipality. The most important consideration is the verbal and written form of the general partnership agreement, which should be drafted with the assistance of qualified professionals who possess an understanding of the local laws and regulations. Generally, this agreement should detail the scope of the partnership, including each partner’s roles and responsibilities, a dispute resolution process, and provisions for the dissolution of said partnership.
What are the Advantages of a General Partnership?
Although there are certain legal clauses involved in forming a general partnership, the advantages can be considerable. Above and beyond tax benefits, there are other elements to consider, such as liability, which can be shared by partners largely driven by the agreement’s dispute resolution process. Additionally, businesses run in the form of a general partnership are generally more cost-effective than those run under a corporation, which may require hefty registration fees.
Are General Partnerships Compliant with Regulatory Requirements?
Generally, businesses structured in the form of a general partnership are compliant with a number of regulatory requirements, but may differ from state to state. Depending on the nature of the business, there may be additional regulations that need to be carefully considered when establishing a general partnership.
Do I Need a Lawyer to Form a General Partnership?
Given the complexity of forming a general partnership and the need to consider local laws and regulations, it's advisable to enlist the services of a lawyer who has experience with the process of business formation. An experienced lawyer will also be able to advise you on the finer points of your agreement as well as possible contingencies and how to resolve any disputes that may arise between partners. Fortunately, if you are based in Los Angeles, UpCounsel has a network of experienced attorneys that possess the knowledge to handle all aspects of the general partnership formation process.
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