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Types of business entities: The general partnership

If you are considering starting a new business, then congratulations are in order! Few things satisfy the entrepreneurial spirit like a new venture. As you begin the process of bringing your vision to fruition, you may find yourself contemplating what type of business entity would best serve your purposes.

In order to make the right choice, you need as much information as possible regarding your choices. If you intend to enter into the business with others, you could form a limited liability company, a corporation or some type of partnership (either limited or general). Each entity type has its pros and cons. Only you can ultimately determine which entity works best for you and your business. This article explores the particulars of a general partnership.

Let's start with the basics

In a general partnership arrangement, you and your partners manage the business jointly. Each of you would take full personal responsibility for the liabilities of the business. This means that creditors and judgment holders may attach your personal assets to cover financial and legal obligations.

How does liability work in a general partnership?

If you take on the role of a general partner, you remain personally fully liable regardless of whether you were involved in the actions that led to the liability. You may believe that since you manage the daily operations of the business that you can control any potential liability issues. However, any partner may take actions on behalf of the business without your knowledge or authorization.

You do receive some benefits

This entity does have its benefits, however. You do not have to register your general partnership with the state. It also allows for the pooling of resources to benefit the business. Each partner often brings a unique skill set and contacts, and you can divide the managerial duties.

Unless you and the other partners make another agreement, each of you receives an equal share of the profits and losses of the business. The partnership agreement outlines the rights and responsibilities of each partner. The agreement may also outline the procedures to follow if a partner leaves or a new one joins.

This article only touches on the surface of what being part of a general partnership entails. You will more than likely have other questions that address your particular circumstances. You can seek help in making this and other crucial decisions as you embark on your new venture.

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