Business Entities - General Partnership

In the state of California, the following are the business entities that are allowed: 

1. Sole Proprietorship
2. Limited Liability Partnership
3. General Partnership
4. Limited Partnership
5. Limited Liability Company
6. Corporations (C-Corporations and S-Corporations)

In the next few blogs, I will be going over the filing requirements for each of these entities, how the entities are created and what forms are required for the entities to file their taxes.  I will also go over the major advantages and disadvantages of each one.  Keep in mind that I am not an attorney, so all I am giving is my opinion.  If you want a legal opinion, please consult an attorney.  I do not dispense legal advice.

General Partnership
This is the simplest form of business for two or more people.  This is basically a Sole Proprietorship for two or more people.

A California GP must have two ore more person engaged in a business for profit.  Except as otherwise provided by law, all partners are jointly and severally for all obligations of the partnership unless agreed by the claimant.  Partners make the business decisions of the Partnership together.  Profits are taxed as personal income for the partners.  To register a GP at the state level, a Statement of Partnership Authority (Form GP–1) must be filed with the California Secretary of State’s office. Interesting fact:  registering a General Partnership at the state level is optional.

The General Partnership files taxes by using the Form 1065 for the Federal Government and a 565 for the state government.  This partnership does not have a minimum tax due at the state level.  Each of the partners receives a K-1 with their share of the income/loss which they transfer to their own personal taxes.

The following are some things to consider regarding a General Partnership.  A partnership is a flexible form of business and relatively easy to set up.  The partners will decide the structure of the organization and the distribution of profits and losses. A formal, written partnership agreement is advisable.  A separate bank account should be established to run the operations.  A partnership allows more than one owner, unlike a sole proprietorship.  The cost to form a partnership is generally less expensive than forming a corporation.  The items of income, deductions, and credits flow through from the partnership to each partner’s California Schedule K-1, Partner’s Share of Income, Deductions, Credits, and distributive shares of property, payroll, and sales.  Each partner is responsible for paying taxes on their distributive share.  In a general partnership, each partner is personally liable for all business debts and lawsuits.  A partnership exists as long as the partners agree it will and as long as there are at least two partners, one of whom is a general partner.