When it comes to forming a business, understanding the basics of each of the business formations is the first step to deciding which will work best for you. For small business owners, general partnerships are an attractive option because it requires little paperwork and is easy to form. But there are certain legal considerations for those considering this formation, especially when it comes to understanding local regulations. This guide will take you through the different elements of a general partnership, as well as the applicable laws in Chicago.

What Is a General Partnership?

A general partnership (also known as a GP) is a type of business entity with two or more owners. The owners of a general partnership are responsible for all debts, liabilities, and taxes resulting from their business. In a general partnership, each partner is personally liable for the entirety of the partnership’s debts – meaning that creditors can come after the business owners for any unpaid debts.

General partnerships are relatively simple and don’t require complex paperwork or expensive filing fees to create. In most cases, a verbal agreement between the partners is sufficient. However, if the business is planning to operate in multiple states or needs to secure a loan, it is best to have a written partnership agreement in place. This agreement should cover things like the roles and responsibilities of each partner, dispute resolution, and other clauses that ensure the partnership can operate smoothly.

General Partnerships and Tax Obligations

General partnerships are considered “pass-through” entities, meaning that the business’s taxes are “passed through” to the individual partners. This means that the partners are each responsible for their portion of the taxes due on the partnership’s net income. Although there may be tax advantages to forming a general partnership, the partners are still responsible for filing any applicable tax returns and making any payments due.

Forming and Operating a General Partnership in Chicago

In Illinois, the process for creating and operating a general partnership is relatively simple. There is no requirement to file any paperwork with the state, other than the applicable taxes. As a general rule, each partner is personally responsible for the business’s debts and obligations.

However, in Chicago, it is important to consider local regulations that may apply to your business. Licensing and zoning requirements must be met before starting a business, and taxes must be paid in addition to state and federal taxes.

It is also important to have a binding partnership agreement in place that clearly outlines the roles and rights of each partner. This document will serve as the blueprint for operating the business and should be updated periodically to reflect any changes to the partnership.

Dissolving a General Partnership

If the partners decide to dissolve the business, a formal agreement must be drafted detailing the steps to be taken and how the business’s assets will be divided. All creditors must be paid and the state of Illinois should be notified that the partnership has been dissolved. Depending on the type of business and the regulations in the state of Illinois, other steps may be required as well.

Closing ideas

Forming a general partnership is a simple and relatively inexpensive way to launch a business. However, its easy formation can lead to problems down the line if the partners don’t have a solid understanding of their obligations statutorily and under local regulations. With proper planning and understanding of laws in Chicago, any partnership can be successful.


General Partnership,

Business Formation,

Chicago Regulations