Business Structures
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Partnerships can come in many different forms, but the most basic partnership is a general partnership. A general partnership is essentially the same form as a sole proprietorship, except that it involves 2 or more persons. A general partnership involves 2 or more people carrying on business in their names or a fictitious name. A general partnership does not require any paperwork to be filed with any government body. So, a general partnership is the default structure for any 2 or more individuals who simply begin working together one day. Also, general partners split profits and losses equally depending on the number of partners (e.g. 2 partners would split 50/50, while 4 partners would split 25/25/25/25), unless the partners explicitly agree to split profits and losses in a different manner (which should be put in written contract agreement).

Now, keep in mind that a general partnership is the default form of partnerships. That means that if you simply start working with 2 or more individuals in a business, and take no other legal actions, the default general partnership rules will apply to you. Check your state’s statutes for general partnership law and the default general partnership rules.

While general partnerships are easy to form, there are many drawbacks to forming a general partnership. Like sole proprietorships, partners in a partnership are personally liable for all acts and omissions of the business. This is a key point to remember. In general partnerships partners are personally liable for the acts and/or omissions of other partners! If you think about it, this actually creates more liability than in a sole proprietorship. In a sole proprietorship, you’re only liable for your acts and/or omissions, not for your partner’s acts and/or omissions too. So, keep this key concept in mind if you join with someone else to form a business and take no legal steps to limit your liability – you could be personally liable for the acts and/or omissions of your partner.

However, if you recall from earlier in this article, a general partnership is only 1 type of partnership. In fact, there are many different forms of partnerships including limited partnerships and limited liability partnerships. These types of partnerships require some kind of contract or agreement between the partners which limit liability of the partners in different ways.

The general taxes and liabilities for general partnerships are as follows:
  1. Taxes – taxed at your personal income level rate
  2. Liability – personal liability
Next, we’ll go over the basics of the limited liability company business structure.

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