General Partnerships

A general partnership is an association of two or more people carrying on a business together with the goal of earning profits.  Like a sole proprietorship, a general partnership is viewed as being one and the same as its owners.

Advantages of Setting up Your Business as a General Partnership

• Control over growth of your business: Since a sole proprietorship is owned by one person, you have complete control over the business.  The sole proprietor makes all of the decisions and is the sole beneficiary of the company’s assets.

• Ability to pass business to heirs upon death: A sole proprietorship has a single owner, making it easier for that individual to pass the business on to family members upon death.

• Ease of setting up the business: Forming a sole proprietorship required little paperwork beyond a business license, permits and filing the business name with the State of Minnesota.

• No corporate taxes: Like a sole proprietorship, a partnership has only one level of taxation.  Partnerships do not pay income tax because profits and losses are passed through to the individual partners.

• Minimal set-up costs: Creating a general partnership requires less paperwork and is cheaper than forming a corporation.

Disadvantages of Setting up Your Business as a General Partnership

•  Joint and several liability: Owners of a partnership have unlimited personal liability and are jointly liability for the partnership’s obligations.  Each partner is personally liable for all of the debts of the partnership, including any debts incurred by any of the other partners on behalf of the partnership.  If the company gets sued, the partners are liable.

• Ability of one partner to bind the partnership: Any partner in a partnership can enter into a contract on behalf of the partnership.

• Dissolution due to death of a partner: The death of a partner terminates a partnership.

• Personal property: A partner’s interest in a partnership is considered personal property that may be assigned to other persons.

• Difficulty obtaining financing and long-term capital: Sole proprietorship cannot raise capital by selling stock.  A business owner may find it difficult to attract investors and banks may be less likely to provide financing.  The owner will typically have to finance the business based on their personal assets.

• No Asset Protection:  The business owner is personally liable for all the business debts and assets are not protected from creditors.

• Higher income taxes: Money earned as a sole proprietor has the potential to put the business owner into a higher tax bracket.

• Difficulty selling the business: Selling an interest in a general partnership is very troublesome. All other partners typically have to agree.

Partners in a partnership owe a fiduciary duty to one another.  Unlike a sole proprietorship there is more than one person involved in the business.  Partners owe each other, and the business, basic duties of good faith, the duty of act for the common benefit of all partners relating to the business, loyalty, honest and fairness in all business dealings with one another.   The duty of loyalty requires a partner not act on behalf of someone having an interest adverse to the partnership and not competing with the partnership.  If a partner gets any benefits from the partnership, he or she must share them with the other partners.  Additionally, a partner cannot put his or her interests before those of the business and may not have conflicting fiduciary duties.
Like a sole proprietorship, if a General Partnership chooses a fictitious name it must files that name with the State of Minnesota.  Without written documentation, the partnership becomes subject to significant defaults of Minnesota law under Chapter 323A, the Uniform Partnership Act of 1994.  Let us help you with your partnership paperwork.  Call us today at (877) 365-3221 to set up an appointment to discuss what the best business structure is for your business and tax situation.