Pros of general partnerships
More Simple Taxes
The primary advantage of a general partnership is the tax benefit. Businesses structured as partnerships do not pay income tax. Instead, all profits and losses are passed through to the individual partners. Likewise, all liability also flows to the partners… more on this below.
A bit less paperwork
Creating a general partnership is simpler, cheaper, and requires less paperwork than forming other business entities. Partnership agreements should state the purpose of the business and the responsibilities of each partner. Consult an SC attorney if you’re unsure of how to create a partnership agreement.
Cons of general partnerships
If you’re structuring your business as a general partnership, realize that a general partnership brings with it personal liability for all the business’s obligations and debts. If the company is sued or goes into bankruptcy, all financial liabilities are the responsibility of the individual partners. Also, most partnerships allow any partner or owner in the company to make decisions on behalf of the company in general. Even if a partner is acting on their own, all partners are responsible for the outcome of those decisions.
Because partners can make investments from their personal finances and the money invested is then owned by all partners, it’s easy for questions of reimbursement to arise. Having all partners equal in power and responsibility can cause problems.
General partnerships are rarely a good fit for business. They leave the owners very exposed financially and a general partnership leaves the door open for conflict. If you are interested in forming a business, you should chat with an SC business law attorney to determine the best option.