General Partnerships at a Glance
Shared power, shared liability...
- Owned by two or more partners who share power, profits, debts, and unlimited liability.
- While formal paperwork is not required to form the business, it is strongly recommended that the owners draft a Partnership Agreement. This document details all of of the "ground rules" business, including obligations of each partner.
- Profits are divided between partners are reported on each of their personal income taxes.
ADVANTAGES
- Formation - Similar to a sole proprietor, a partnership is easy and inexpensive to setup, as there are very few formal regulations.
- Two Heads Are Better Than One – All partners share in the financial responsibilities of the business, meaning that there is a larger amount of money to work with. Particularly useful when first starting up, partners call pool their resources for a financially stronger business.
DISADVANTAGES
- Unlimited Liability – Owners all share the risk of personal liability. This includes being held liable for the actions of fellow partners.
- For Example If one of the owners makes a poor business decision resulting in lawsuit, the personal assets of all the owners may be used to pay for it. This means you could lose your home to a bad idea that wasn't even yours!
- For Example If one of the owners makes a poor business decision resulting in lawsuit, the personal assets of all the owners may be used to pay for it. This means you could lose your home to a bad idea that wasn't even yours!
- Partner Disputes - Since decision making and finances are all shared among multiple individuals, there is the possibility of disputes amongst partners. This discord could cause a gridlock in operations and ultimately hurt your chances for having a successful business.