General Partnership (GP)
You may be in one without even knowing it and are subject to many laws effecting partnerships! You form a partnership if you engage with anyone else in business for profit, unless an intent to form some other form of business entity is clearly stated. So, regardless of whether you sign any papers or not, you are liable, i.e., a general partnership (G.P.) has been formed and you are all equally liable. This is particularly dangerous since each general partner is liable to third parties for actions taken in the course of doing business, i.e., you are liable for the other partners’ acts without even knowing about them. By the way, this is one of the main causes of discord and disintegration of partnership relationships. Time spent on properly defining the partnership relationship, everyone’s duties, authority and considering the consequences IS A MUST. Again, your LIABILITY IS UNLIMITED, including acts of any employees and agents.
Legally, a general partnership is an association of two or more persons to carry on as co-owners of a business for profit that is not a limited partnership. Its main characteristics are:
- Each partner is an agent of the partnership and can bind the partnership in its ordinary course of business.
- Each partner is personally liable for the obligations of the partnership.
A general partnership is generally not subject to federal or California income or franchise tax. A conversion from a partnership to a corporation or an LLC needs to include the pertinent tax considerations. It’s important you consult a professional in this area.
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