General Partnership

A general partnership is very similar to that of a proprietorship except that two or more people have an ownership interest. There is an act called the Uniform Partnership Act, which has been adopted by many states. A Formal Partnership Agreement is usually prepared by the partners forming a general partnership, but are not specifically required by the Uniform Partnership Act. These articles outline the contribution by the partners into the business and generally discern the roles of the partners in the business as well as, outline how the partners will share profits and losses. Here are some of the advantages and disadvantages of a partnership.

Advantages

• Easy to establish
• Can draw upon the financial and managerial strength of all of the partners
• Profits are not directly taxed to the general partnership since they are taxed to individual partners

Disadvantages

• Unlimited personal liability
• Termination of the business upon the death of a partner (in the absence of advance planning for business continuation)
• Relatively difficult to obtain large amounts of capital for the business
• One partner can bind the partnership to an obligation

Note: It is important to understand that a general partnership does not protect its partners from personal liability with respect to claims against the partnership.