What is a General Partnership?

A general partnership is a type of business structure where two or more people draft an agreement to go into business together. In a general partnership, there are two or more partners. The biggest benefit of general partnerships is freedom from bureaucracy. If you have more legal questions about a general partnership, use the free legal help tool below

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Mar 23, 2022

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If you are wondering, “What is a general partnership in business?” you have come to the right place. In business, when you hear the word partnership, although there are other types of partnerships, it generally refers to a general partnership business structure. It is one of the common types of business organizations. General partnership companies allow for an easy business setup. Read on to learn how this type of business structure works.

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How does a general partnership work?

In general business partnerships, there are two or more partners that are part-owners of the legal entity. Each is liable for any partnership debt or judgments taken on by the business. There is no limited liability, which means all the partners’ assets can be taken in a lawsuit or be targeted to settle business debts should the partnership become insolvent. Any business partner can be sued for the full amounts of any business debt if they do not cover their financial obligations.

Another attribute of the general partnership is that every business partner has so-called “agency powers,” which means any general partner can bind the entire business to a contract or business deal.

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What are the benefits of a general partnership?

General partnership businesses have advantages that include structure and control. Unless by other agreement, business profits are shared equally among the partners. Usually, there is a contract of some sort that outlines how the sharing of profits and losses will be divided among the individual partners.

In a general partnership, each partner has an equal right to participate in the management and control of the business operation and can make a business decision. The partners have the option of resolving disagreements by majority rule or by developing a voting or other dispute resolution system. Some partnerships provide for certain electees to manage the business partnership, like a company board. However, many do not. One reason for forming a general partnership is freedom from bureaucracy associated with other business structures, such as corporations.

The partners have near-complete discretion over who can become a member of the partnership. Unless otherwise provided in the business partnership agreement, no one can become a member of the general partnership without the consent of all partners.

A partner can assign their share of business profits and losses and the right to receive distributions. This is called a transferable interest. This partnership interest can be applied, with an agreement, towards paying to satisfy a judgment against that partner.

How do you start a general partnership?

Another benefit of the general partnership in a business operation is that there are not many steps to starting one. The process is fairly simple as there is no need to file legal documents with the state as with more a specific business entity like a corporation or a limited liability partnership. All the partners need to do is draft a general partnership agreement.

If you aren’t sure whether or not a general partnership is right for you, get advice from a pro with expertise. To be connected with a lawyer for free, enter your ZIP code below.

Resources:

  1. https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/templates-business-guides/glossary/general-partnership#:~:text=A%20general%20partnership%20is%20a%20business%20established%20by%20two%20or%20more%20owners.&text=The%20owners%20or%20partners%20can,organization%2C%20its%20goals%20and%20values
  2. https://www.investopedia.com/terms/g/generalpartnership.asp
  3. https://bench.co/blog/starting-a-business/general-partnerships/

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