How to Understand the Advantages of a General Partnership

General partnerships offer members the advantages of shared risk, total control and ease of setup. On the other hand, unlimited personal risk tends to make potential general partners shy away. General partnerships are best for family-run businesses or husband-and-wife operations in which none of the participating parties mind being bound to the decisions of the others. This simple structure can streamline business function and make operations a snap under the right circumstances. Follow these steps to learn more.

Instructions

Difficulty: Easy

Things You’ll Need:

• Attorney or accountant specializing in small-business transactions

1. File only personal tax returns as a member of a general partnership. As a pass-through tax entity, this form of business pays no direct tax; its individual owners carry the tax burden instead. Find the necessary tax forms at the IRS Web site (see Resources below).
2. Enjoy equal voting rights in a general partnership, regardless of the percentage of start-up cash you contributed or your current contribution to the partnership's financial resources.
3. Form a general partnership named after the owners to bypass filing a fictitious name with the state. Use the saved time and fees for business and operating expenses.
4. Streamline the decision-making and execution process and have one member of a general partnership enter into all contractual obligations. Any member may sign on behalf of the partnership, removing the need to have all parties present for important transactions.
5. Understand that it's only a good idea to enter into a general partnership with those you trust implicitly. This structure is best suited for those intimately involved or those who want to be "silent partners" of sorts.

Tips & Warnings

• Purchase an insurance policy to protect your liability within a general partnership, since each partner is personally liable for the company's undertakings. Research the liability coverage of any policy before you subscribe. Some policies leave out coverage for errors, fraud and malpractice on the part of your partners.
• Understand that one partner's business conduct binds all other members of a general partnership. Therefore, it is vital to have complete trust in those with whom you enter this arrangement.