There are many types of partnerships such as limited liability companies, limited liability limited partnerships, limited partnerships, general partnerships etc. The article below has been drafted by a business attorney at The McGuire Law Firm to discuss a general partnership. If you have questions related to your business, please contact The McGuire Law Firm.
A general partnership can be defined as an association of two or more persons to carry on business as co-owners for a profit. Thus, this type of partnership can be formed from conduct and conduct alone as you do not need to file any documents with the secretary of state, you simply start operating a business, with another individual in an attempt to earn a profit. You may have even formed a general partnership at one time or are operating within one now and you do not even realize it.
Some laws have been codified such as the Uniform Partnership Act, but it is important to remember that when reviewing the relationship amongst partners and between the partners and the business, these statutes and acts really on provide default rules. Most prudent business owners would have a partnership agreement spelling out the rights and duties of each partner that comply with the state laws in which the partnership sits, and certain tax laws developed by the Internal Revenue Service. The partnership agreement can control the relationship amongst the partners and relationships between the partners and the partnership as a business.
A general partnership has traditionally not been an entity that is separate from the owners or individual partners, but rather has been viewed as an aggregate of the individual partners that operated the general partnership. Thus, the partners are individually liable for the debts of the partnership, which is generally viewed as a major disadvantage to a general partnership. However, the vast majority of “large” or “pertinent” debts other partnerships take on, would generally be personally guaranteed by the partners anyway, but you must consider torts the business may commit that the individual partners of a general partnership would be responsible for.
All of the partners in a general partnership are owners of the business and in the absence of an agreement to the contrary, all owners have an equal voice in the management and share of business profits and losses. Further, a partner can bind the partnership to agreements that entered into in the ordinary course of business. It is important to note that the partners have a fiduciary duty and generally must act in good faith and fair dealing for the benefit of the partnership.
If you have questions regarding the formation or entity structure of your business speak with a Denver business attorney at The McGuire Law Firm. A business attorney can discuss your entity options, discuss the tax & liability consequences of specific entities and help you draft the proper business contracts.