What Are the Characteristics of a General Partnership?
The basic characteristics of a general partnership include group ownership, personal liability, decentralized management and pass-through federal income taxation. Limited liability of owners for business matters is the primary benefit that is available under other business structures, but it is not characteristic of a general partnership. Read on for more features of a general partnership, and business insight.
A general partnership is a group of two or more persons who agree to work together for profit. The partners are personally responsible for all business transactions, and any individual partner has the authority to make decisions on behalf of the entire partnership unless that authority is expressly limited by the partners.
Unlike a corporation that must follow complicated management regulations, partners can manage the enterprise informally or under terms the partners agree upon themselves and formalize in a partnership agreement. General partnerships also benefit from special tax treatment under federal law. Forming a corporation can be a lot more expensive than a general partnership in terms of taxes.
Features of a general partnership include include unlimited liability, meaning that both partners are subject to losing assets if the partnership does not go smoothly. There is definitely a risk involved and one should consider that risk before a general partnership.
Other characteristics of a general partnership are that the business is not required to file a federal income tax return; instead, it passes profits and losses through to the partners who report the amounts on their personal federal income tax returns and pay taxes on the amounts at their individual tax rates. General partnerships usually dissolve if one partner passes away.