General Partnership

What is it?
A general partnership is formed when two or more partners (who can be individuals, other partnerships, LLCs, or corporations) join together to conduct a business for profit. The general partnership is a legal entity that is separate from its partners, but the partners are personally liable for partnership debts and obligations.

How is it formed?
Most states do not require that the partners file a formation statement to form a general partnership, but in many states the partners may elect to file a statement identifying who has been authorized to execute contracts on behalf of the partnership. A partnership agreement may also be prepared to describe the economic, voting, and management rights and obligations of the partners.

How is it taxed?
General partnerships are “flow through” entities for income tax purposes. This means that the general partnership does not pay income taxes directly to the IRS, rather the partnership’s revenue and expenses are included by the partners on their income tax returns. However, a general partnership may be required to remit income tax deposits to a state on behalf of one or more partners under certain circumstances. Partnerships also are generally required to register with the state department of revenue for the collection and remittance of sales and use taxes, payroll taxes, or any other applicable state or local taxes. Some states also impose a “replacement” tax or property tax on the partnership’s income or property, which is paid by the partnership, in addition to any income tax paid by the partners.

Who uses it?
General partnerships may be formed by two or more individuals when they create a business or purchase income producing property together without forming another type of entity. General partnerships may be converted into another entity to limit each partner’s personal liability to future creditors of the partnership.