Published by Theresa Hoff on 17 Sep 2008 at 09:00 pm
General Partnerships: A Not-So-Great Business Structure
No one with any sense advertently forms a general partnership these days, yet I hear over and over again new entrepreneurs looking to start a business with a partner mention how they want to form one.
As any smart business person should do, you need to first research your options available and listen to those who know.
The worst way to hold any assets or to do business as a partner is a General Partnership. In my opinion, it’s all negative and there’s absolutely no advantage whatsoever.
Ok, what is a general partnership?
Here’s the definition: A general partnership is one in which all partners are general partners.
More specifically when a group of individuals (two or more persons) agree to collectively act as a business, a general partnership is formed. The emphasis here is on general. Most people have found that you can sue not only the partnership for all the assets it has, but if it doesn’t have enough, you can go after the individual partners and reach their personal estates. Ouch!
That’s called the disadvantage of unlimited personal liability.
Why is it such a disadvantage?
Each member of the general partnership is liable for all potential liabilities of each of the other partners. For example, if an employee of the general partnership causes an accident while on company business, each of the partners individually can be held 100% liable.
My advice - forget the general partnership and stick with a limited partnership or the LLC structure.
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Barbara Swafford
on 18 Sep 2008 at 1:04 am #
Hi Theresa,
I have to agree with you on this one. The risks in a general partnership are TOO high. And, we know what happens when money comes between partners. It’s not pretty.
Barbara Swafford’s last blog post..In The Blog House
Theresa
on 18 Sep 2008 at 9:36 am #
Yeah just not a good idea to venture into, even if general partnerships are composed of close friends and family. Then not only is the business and assets at risk but relationships crash and burn too.
Cath Lawson
on 20 Sep 2008 at 3:32 am #
Hi Theresa - brilliant article. Having been in a general partnership before - I couldn’t agree more. I had real problems changing the bank account months after my former partner (my ex) had left the business. And he was able to carry on emptying the account for ages - plus, I had to pay all the tax on the money he’d taken. It was not good.
Cath Lawson’s last blog post..Recession Fears? Don’t Let The Whingers Get You Down
Theresa
on 21 Sep 2008 at 10:35 am #
Cath that is exactly what I was talking about, sorry it happened to you. Hopefully people will do their homework and research what business structure might be best for them.
p.s…..great blog on Recession Fears!