The Language of Real Estate – Learning real estate one word (or phrase) at a time…
A co-owner of a partnership who is empowered to enter into contracts on behalf of the partnership and be fully liable for all partnership debts.
The general partner may be a corporation or an individual.
In a limited partnership, the general partner is in charge of managing the partnership, has authority to act unilaterally on behalf of the partnership, is accountable to the limited partners as a fiduciary, and has full liability for the debts and obligations of the partnership.
Key characteristics of a general partnership include:
Shared Management: Partners in a general partnership have equal say in the management and decision-making of the business. Each partner is actively involved in its day-to-day operations.
Shared Profits and Losses: Profits generated by the business are distributed among the partners according to the terms of the partnership agreement or, if no agreement exists, equally among all partners. Likewise, partners are personally liable for any losses or debts incurred by the business.
Personal Liability: One significant drawback of a general partnership is that each partner has unlimited personal liability for the business’s debts and obligations. This means that if the business cannot cover its liabilities, personal assets of the partners can be used to satisfy business debts.
Pass-Through Taxation: General partnerships do not pay income taxes at the business level. Instead, profits and losses “pass through” to the individual partners, who report their share of income on their personal tax returns.
Unlike some other business structures, general partnerships typically require minimal formalities for formation. However, it is advisable to create a partnership agreement to define the terms of the partnership, including capital contributions, profit-sharing, management roles, and dispute resolution procedures.
It’s important to note that while general partnerships are relatively easy to establish and manage, the personal liability of partners is a significant drawback. Partners are personally responsible for the business’s debts and liabilities, which can put their personal assets at risk. Therefore, individuals considering a general partnership should carefully weigh the advantages and disadvantages and consider consulting with legal and financial professionals to make informed decisions about their business structure.