General Partnerships

Overview

A general partnership is a business enterprise entered into by two or more persons who do not form a corporation or any other type of business entity to operate a business.  If two or more individuals start a business together with the understanding that each will share in the profits of the enterprise, they are considered a general partnership even if they didn't specifically intend to start a general partnership.
 
A general partnership does not offer the partners any limited liability protection for their personal assets. A judgment against the partnership generally allows a creditor or claimant to go after the assets of the partnership and all partners to satisfy a judgment.

Both very large and very small businesses can operate as general partnerships. It is not necessary to have a written partnership agreement to be considered a partnership (though it is often advisable in order to avoid unintended results that may occur from the application of a state's default partnership provisions.)

For federal tax purposes, there are no restrictions on who can be a partner in a partnership.  Thus, individuals, estates, trusts, corporations, foreign persons, and tax-exempt entities can all be partners for federal tax purposes.  State law, however, may impose some limitations.  For example, state law may only recognize individuals who are licensed physicians as partners in a partnership providing medical services.

A general partnership is a pass-through tax entity. It does not pay taxes at the business level. Instead, all profits and losses are "passed through" to the partners on a pro rata basis according to their respective ownership percentages or other percentages agreed to in a partnership agreement.

Like a sole proprietorship, general partnerships usually are not required to file any certificates or other organizational documents with municipal authorities, but they usually must file a "fictitious business name" or DBA in the municipality where they are located.


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