When starting, all business owners face the decision of how to structure their companies. They may choose from sole proprietorships, partnerships, limited liability companies and other structure options. With various formation types available, some may struggle to determine which option best suits their current needs and future goals.
Before choosing to structure as a general partnership, it may help business owners to understand some important elements of this formation type.
According to the Oregon Business Xpress portal, general partnerships do not pay taxes as companies. Instead, partners report their share of the business’ income and debts on their personal returns. The partners then each pay their portions of the business’ taxes along with their personal taxes. This may avoid the double taxation that business owners may face with structure types such as LLCs and corporations.
Like sole proprietorships, the partners involved in business partnerships share unlimited personal liability for their companies’ debts. For example, should a customer suffer an injury due to the use of a product and choose to take legal action, the partners may have to pay any damages awarded from the business’ and their personal finances.
According to the U.S. SBA, upon the death of a partner, general partnerships dissolve. The surviving partner or partners may choose to continue with the business. In doing so, the business legally transitions to a new general partnership. That is not to say that the business must liquidate or terminate in order to start over. Rather, the partners may reform under a new agreement or through survivorship plans included in their original agreements and move forward with their companies.