Continuing my post about the advantages and disadvantages of a sole proprietorship, the next I will detail is a General Partnership.
A general partnership is an agreement between two or more parties in which they agree to share the profits and assets of a business, along with the expenses and liabilities.
In my opinion, the biggest advantage is the ease of start and the biggest disadvantage is the unlimited legal liability of all partners.
When I started my first cleaning company, we went to the local city license office and applied as a partnership.
An attorney can help you prepare your General Partnership Agreements. If you want to prepare your own, I will be creating a template in the future. Most likely you will need a partnership agreement to open a bank account in the name of the partnership.
Advantages
- A General Partnership is cheap and easy to start. As mentioned above, you only need to apply in your local city or county, there are no State level filings.
- Income (and losses) are passed through to the partners. This means that partnership income is only taxed once (unlike C Corporations) and losses can be used to offset other income and not carried forward, unless that partner has a Net Operating Loss (NOL) on their personal return.
- Income, gains and losses can be split be between the partners any way wanted with a partnership agreement, regardless of how much an individual partner invested. Absent a partnership agreement, income, gains and losses are split evenly between partners.
- The partnership can be converted into another entity type in a tax-free transaction.
- All partners participate in management and written partner meetings are not required by your State’s SOS.
- A partner can withdrawal at any time and receive fair value of their partnership interest. A partner can also transfer their interest.
Disadvantages
- General partners are liable for all obligations of the partnership, even if a different partner entered into a debt agreement without partner consensus. A debtor can sue any or all partners to satisfy the debts, including the personal assets of the partners.
- You will need to file a separate tax return, Form 1065.
- On your personal tax return, you will be responsible for self-employment taxes (currently 15.3%) along with taxes on the income and gains. Self-employment taxes are the Employer and Employee portion of Social Security and Medicare. Currently you can deduct half from your AGI in calculating taxable income. This in effect allows you to deduct the employer portion just like an other business could.
- Since all partners participate in management, all partners can bind the partnership and disagreements can ruin partnerships (or friendships.)
- All partners must be in agreement for a partner to be able to transfer their interest to another party. Template for a new partner.
- Partnerships are automatically dissolved if a partner withdrawals, dies or is incapacitated, unless an agreement is in place that specify what would happen in the event of.
A General Partnership is a quick and easy entity type if you have a business you are starting with someone you trust completely and does not come with a lot of legal liability. To be safe, you definitely need a Partnership Agreement. See the bottom of this page for how to order a General Partnership Agreement. If you are a company looking to work with an individual or another company, a Joint Venture Agreement may be what you need.
General Partnership Agreement Template
GENERAL PARTNERSHIP AGREEMENT
of NAME OF COMPANY
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DATE: |
[xx/xx/xxxx] |
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PARTIES: |
[List Names of all partners] (the “Partners”) |
AGREEMENTS:
ARTICLE I
FORMATION OF PARTNERSHIP
1.1 Formation. The Partners hereby agree to form a Partnership pursuant to the provisions of the Partnership Act of the State of [State] (the “Act”) and on the terms and conditions set forth in this agreement.
1.2 Name. The name of the Partnership will be [name of partnership].
1.3 Principal Office. The principal office of the Partnership will initially be at [location or where records held], but may be relocated by the Partners at any time.
1.4 Purposes and Powers. The Partnership is formed for the purpose of [description of partnership’s business] and doing all things necessary, incident, or in furtherance of that business.
1.5 Duration. The Partnership is created for no definite term or particular undertaking, as those terms are used in the Act. The Partnership will commence on the date of this agreement and will continue until dissolved as provided in this agreement.
1.6 Title to Assets. Title to the assets of the Partnership will be held in the name of the Partnership. No Partner individually will have any ownership interest or rights in the assets (including those contributed by the Partner) except indirectly by virtue of the Partner’s ownership of an interest in the Partnership. No Partner will have any right to seek or obtain a partition of any asset of the Partnership, and no Partner has the right to any specific assets of the Partnership upon the liquidation of, or any distribution from, the Partnership.
ARTICLE II
PARTNERS, CONTRIBUTIONS AND INTERESTS
2.1 Initial Contributions. The agreed value of the initial capital contributions of each of the Partners and their initial Ownership Interests are as follows:
If you want the entire 11 page General Partnership Agreement in Word format, please checkout below at bottom of the page. The Template is $4.99. You customize to fit your needs. I email every template out myself. You can spend a few hours online getting less comprehensive .pdf versions yourself for free or put this together over about 6 hours yourself, or you can save your time and order a partnership agreement ready to customize to your company.
You can also consult with your attorney. I am an affiliate for LegalShield.
All transactions go through PayPal, I never have access to your credit card. I will email the partnership agreement to the email address listed by PayPal within 24 hours, or I will refund your money (and still give you the partnership agreement.) Make sure your email is up-to-date.
Once you start your partnership, I would love to prepare your taxes. Reach out through this website or ValdostaCPA at Yahoo dotcom. Fees start at $250 for a 1040 and $750 for a Form 1065.
