What is a General Partnership? How Corporate Lawyers in Los Angeles Can Help
Two or More Join to Form Business: General Partnership3 min read
In business, a general partnership is an arrangement between two or more people who join together to form and run a company or venture. Partnerships are governed by laws which vary by state, though there are some common attributes. For businesses in Los Angeles, the local attorneys who specialize in corporate law can provide guidance and answer important questions about the definition of a general partnership and the potential impacts on the company’s legal structure.
A general partnership occurs when two or more people or entities come together to assume the risks and rewards associated with running a venture. Partnerships are often formed when founding business owners are looking to share equity and profits. The partnership agreement - the document that governs the rules and regulations of the partnership - sets out the details regarding the structure of the business, each partner’s duties and responsibilities, legal liabilities and insurance obligations.
Partners may be individuals, corporations or even other entities such as LLCs. In many cases, a general partner will retain all of the business’s profits and losses and manage the business’s day-to-day operations. However, the partners can agree to give a partner a specialization in certain aspects of the business, such as managing, bookkeeping or marketing.
In general, partnerships are loosely formed and unincorporated organizational structures. Since there is no central management group such as a board of directors standing as a legal representative, the partners usually make decisions collectively. Any of the members can make business decisions, enter into agreements with customers, or take out loans without any further agreement or approval from the other partners. Generally, if a partner makes a move without consulting the other participants, the other partners are still held liable for that decision. As such, it is important to both agree on a course of action before proceeding and to document any decisions that are made.
The caveat is that all partners are jointly and individually responsible for the obligations and liabilities of the partnership, regardless of who made a given decision or incurred a given debt. Each partner holds a “several” interest in the partnership, meaning each partner’s liability extends only to their respective share of any obligation or debt. However, they are all equally liable for the entire amount when sued in a legal dispute.
Fortunately, partners can agree to limit a certain partner’s liability by suggesting that the partner’s personal credit is not used or by including language in the partnership agreement that makes each partner’s liability a “several” as opposed to “joint and several.”
The taxes for a general partnership are typically simpler than those of a corporation or LLC as the partners are taxed on their see of the profits at their personal income tax rates. Additionally, they can agree to pay an amount of the profits to the other one or more of the partners. There are however some complexities in the taxation that a corporate lawyer in Los Angeles can help to understand, including the individuals' rights to deductions on the entity's losses, the partner's international tax matters, and the applicable self-employment taxes.
Though general partnerships are a flexible organizational structure, there are pros and cons that must be weighed before entering into one. The corporate lawyers in Los Angeles can help clients to better understand the definition of a general partnership and craft a partnership agreement that fits their needs. With the right advise from the local attorneys, businesses in Los Angeles can more confidently decide whether a general partnership is the right fit.