Having your own business and keeping it productive is fun! However, this process is fraught with many difficulties, which are best solved as a team! That is why many aspiring entrepreneurs team up with one partner (or several at once) and create a successful and highly profitable company.  

You can choose not to register a new business at the state level. Then you automatically acquire the status of a general partnership. However, are you sure that this status corresponds to your business activity?

It is worth noting that when you create a general partnership, you will not receive limited liability protection, as is the case with an LLC. Many small business owners prefer LLC as a business unit, as it is easy to start it by doing it yourself or hiring a service.

Start By Choosing Your State!

Start By Choosing Your State!

Do you want to know how to become a general partnership and what are the advantages and disadvantages of this business unit? – We will be happy to provide answers to all your questions about partnership!

Alabama Louisiana Ohio
Alaska Maine Oklahoma
Arizona Maryland Oregon
Arkansas Massachusetts Pennsylvania
California Michigan Rhode Island
Colorado Minnesota South Carolina
Connecticut Mississippi South Dakota
Delaware Missouri Tennessee
Georgia NebraskaUtah
Hawaii NevadaVermont
Idaho New Hampshire Virginia
Illinois New Jersey Washington
Indiana New Mexico Washington D.C.
Iowa New York West Virginia
Kansas North Carolina Wisconsin
Kentucky North Dakota Wyoming

General Partnership: All the Forms of Legal Protection

So, before diving deeply into the existence of legal protection for a general partnership, it is best to clarify what the term legal protection means.

It’s about protecting personal assets or limited liability. It is a kind of privilege enjoyed by formal businesses. The bottom line is that the legislation separates the business unit and its owners. Thus, the personal assets of entrepreneurs are out of reach.

Such protection ensures the safety of personal property (housing, cars, personal bank accounts, valuable equipment, etc.) in cases of encroachment on it by government agencies. Such situations happen quite often when a company has troubles that entail litigation and fines.

For example, if a company receives a lawsuit or does not fulfill its financial obligations, its owners cannot lose their assets. They are under full protection from this type of encroachment. Exceptions are cases of proven fraud by business owners or inadequate maintenance.

Unfortunately, within the framework of a general partnership, such a legal division is not provided. It is the head disadvantage of this type of business when compared to an LLC. For the law, owners and legal entities are the same, and therefore, the personal assets of the partner or partners of the general partnership are not protected.

What are the implications for my business?

So, we found out that a general partnership as a business unit does not protect your assets. It means that each partner is personally responsible for paying off the company’s debts (if any). However, there is even worse news! A general partnership does not mean that you will share all the responsibility with your partner 50/50! Your liability can be as high as 99%!

It is terrible, but you can be forced to pay debts that have arisen as a result of your partner’s mistakes. For example, your partner entered into a contract and did not fulfill their obligations under it.

And then, one day, the moment will come when creditors will have the right to collect the debt! Does your partner have insufficient assets to cover all the debts? – Then, you will have to pay debts from your assets.

At the same time, it does not matter what share of the profit you take for yourself (20% or 60%), as you can also bear 100% responsibility for paying debt obligations! It entails the biggest risk you can get into if you are a general partnership. It is one of the reasons why our specialists are against this business unit.

That is why many aspiring entrepreneurs avoid the organization of a general partnership, as the risks are very high. Indeed, in this respect, even individual entrepreneurship seems to be more reliable! After all, if you head a sole proprietorship and something has gone wrong, you will have no one to blame except yourself. You do not have a partner!

Is there a real way to secure my business?

Do you want to run your business as a general partnership? – You have the right to choose this business unit, but at the same time, you will be deprived of the opportunity to protect your liability. It is a fact and a fatal lack of general partnership! However, there are several other ways to protect your liability and assets.

Of course, the best option is to create an LLC and share liability with several partners. To set up an LLC, you will have to spend a certain amount of finance to pay fees and go through a fair amount of paperwork.

However, you will be able to ensure that your assets and your liability are protected. And this is a great advantage! Are you interested in this option? – Explore our General Partnership vs. LLC manual. It contains a lot of useful information to help you understand the differences between the two business units.

Our experts recommend paying attention to LLC as a priority form for creating and maintaining a company. LLC will protect personal assets, bring your business to the market leader, increase consumer confidence. A general partnership will never give you so many benefits.

You can achieve high demand and consumer confidence thanks to the fact that the LLC operates under a fictitious name (DBA). It is unique and the only one on the staff, so your company will be recognizable on the market.

The situation is quite different with a general partnership. For example, your name is Diana Collins, and your partner’s name is Laura Ford, then your general partnership will still be called – Diana Collins & Laura Ford. You should agree that this sounds and looks not very attractive.

So you all want to get on with the job early as a general partnership? – Then, you’d better take care of obtaining civil liability insurance policies for the future work of your company. This way, you can cover the costs if you make mistakes, and you have to bear the financial costs associated with correcting them.

You may not be able to level out all your financial costs in this way! However, you will receive partial compensation for the consequences of the litigation and payment of the debts by your general partnership.

Make sure your partnership agreement contains a clause that governs decision-making! If your partner makes decisions without consulting you, disputes will arise. It can harm the company or even lead to its collapse. Determine the course of such unpleasant events in advance. Develop internal policies for collaborative business decision-making.

Summing It Up

Of course, a general partnership has its advantages! And they all have to do with the fact that it is a simple and basic business unit. Even inexperienced entrepreneurs can handle creating and maintaining a general partnership.  

However, the fact that a general partnership does not provide legal protection for its owners makes this form very disadvantageous. Formal commercial structures (for example, LLC) are in a better position.

Do you want to protect your assets? – Then, don’t contemplate a general partnership as a legal form for your company. You better pay attention to LLC! Create a limited liability company through a website like LegalZoom or ZenBusiness.

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