In order to keep things simple, especially early in a company’s development, two or more individuals may decide to enter into a “general partnership.” The term describes the relationship between individuals who own and operate a business together. These types of businesses are not considered separate legal entities; they are the property and responsibility of individual partners.
The major features of general partnership are:
- Created by agreement, proof of existence and estoppel
- Formed by two or more persons
- The owners are all personally liable for any legal actions and debts the company may face
Unlike in a limited company, in which the personal assets of individual owners are protected in the case of company insolvency, in a general partnership all partners are liable for a business’s debts and obligations. Also, because partnerships are less regulated than other types or organizations (e.g. private companies limited by shares), each partner has legal and financial liability for the actions of other partners (i.e. joint liability). With these risks, however, may come a reward. Profits of general partnerships are not taxed through the business, but rather through the individual tax returns of the partners themselves, and at far lower rates.