Understanding General Partnership in the City of Chicago
Starting a Business in Chicago: Exploring the Benefits of a General Partnership4 min read
For many entrepreneurs looking to start a business in the city of Chicago, the entity type of a general partnership is a popular one due to its advantages in shared ownership responsibilities, limited record-keeping obligations, and the simple process for formation. Think of a general partnership as two or more people or businesses coming together to operate a single business, with each partner having an understanding on their respective roles and responsibilities within the partnership. As with all business entities, it is important to understand the local laws and regulations in Chicago that could affect the formation, operation, and dissolution of a general partnership. To ensure that you are properly establishing your general partnership under all legal guidelines, consider working with a qualified business lawyer in the Chicago area.
In this article, we will discuss the main aspects of forming and operating a general partnership in the city of Chicago. It is important to be mindful that state and local laws can vary widely, and despite the fact this article focuses on understanding a general partnership in the City of Chicago, it is highly recommended to seek professional legal advice from a qualified business lawyer before beginning.
What Is a General Partnership?
Nationally, a general partnership is a business entity in which two or more partners come together to form a single, collective business. The partners are liable for all obligations and liabilities associated with the business - meaning they are personally responsible for any debt or financial losses. A general partnership operates under an agreement between the partners, which details each party’s respective responsibilities and how profits and losses will be shared amongst one another.
Specifically, regarding general partnerships formed in the City of Chicago, municipal law 38-310 generally governs the rules and regulations on the organization of such an entity type.
Optionally, the partners may choose to file the Articles of Partnership with the city in order to better establish their business and create a paper trail of their partnership to better protect each party. However, filing the Articles of Partnership is not required to create the general partnership.
Establishing a General Partnership in the City of Chicago
In the City of Chicago, creating a general partnership is relatively simple and involves the following steps:
1) Establish a name that does not infringe upon existing business names - The entity name must differ from any other business operating in the city. Do note that even if you select an available name, registering the name with the Secretary of State’s Office is not legally required for a general partnership, as no state filing is necessary when creating such an entity type. However, legally protecting the name is recommended.
2) Create a partnership agreement - The partner agreement outlines each partner’s roles and duties, responsibilities,nin influence and level of control, ownership percentages, and how profits and losses will be shared amongst the partners. It is important that the partner agreement is written and filed properly to protect each partner’s rights.
3) Obtain necessary licenses, permits, and insurances - Depending on the type of business you’re creating, you may need to obtain certain licenses and permits for the general partnership before beginning operations. Additionally, it is important to ensure that the general partnership is properly insured to protect the business and its owners.
4) Obtain an EIN - Lastly, the general partnership will need to obtain an Employer Identifying Number (EIN) to pay taxes and open business accounts.
The Advantages of a General Partnership in Chicago
Not only is operating a general partnership relatively simple, it offers numerous advantages to business owners in the City of Chicago.
• Profit Sharing - Every partner is entitled to a share in the profits from the business.
• Shared Responsibility - Every partner shares a degree of responsibility within the business, making it a convenient entity for new businesses.
• Limited Record-Keeping - General partnerships are not legally obligated to maintain significant records such as most corporations do.
• Low Cost - Setting up a general partnership requires very little in terms of cost; all that’s needed is a signed agreement.
• Passing Losses - All partners in the business will share the losses, allowing certain partners to claim them on their individual tax returns.
The Disadvantages of a General Partnership in Chicago
Naturally, there are certain drawbacks to understand when forming a general partnership in the City of Chicago:
• Unequal Ownership - Certain partners can have more influence or control within the partnership than others, leading to potential disagreements within the business.
• Uninterrupted Liability - All partners are held personally liable for any loses or debts brought on by the business.
• Limited Life Span - Generally, the lifespan of a general partnership begins with the business and ends when a partner leaves, dies, retires, or sells their portion of the partnership to another individual or business.
• Attraction of Lawsuits - As all owners within a general partnership are personally liable for any transgressions brought on by the business, the entitym itself can become a target for potential lawsuits.
Get Professional Advice From an Experienced Chicago Business Lawyer
Prior to establishing a general partnership in the City of Chicago, it is highly recommended to seek legal advice regarding local laws and regulations. Consulting with a qualified business lawyer in the City of Chicago familiar with the formation of general partnerships can be invaluable to ensure that all documents and processes are properly created and executed.
An experienced business lawyer can also provide assistance on discovering other options that may better suit entrepreneurs’ needs, such as a limited liability partnership or several other entity types.