General Partnerships are un-incorporated businesses, like the sole proprietorship, created when two or more individuals agree to create a business and to jointly own the assets, profits, and losses. Like corporations (discussed below), partnerships are separate entities from their owners. Partnerships must have at lease one General Partner who assumes unlimited liability for the business. Partnerships distribute all profits and losses to their partners. (LLCs are taxed as partnerships, unless they choose to be taxed as corporations.) Compatibility of the partners is essential.

Advantages:

• Can have more than one owner.
• Ease of formation: By agreeing with one or more individuals to jointly own and
   share the profits of a business. It can be formed by an oral agreement. There
   are no forms to fill out unless you want to use a fictitious name, or you are
   regulated by your State.
• There is no limit on the number or type of partners.
• There is no double taxation as income is taxed only once. The partners must
   claim their share of the profits or losses on their personal returns, not on the
   partnership return.
• Has few legal formalities for its maintenance.

Disadvantages:

• Requires a separate annual tax return from its stockholders – Federal,
   State, and local.
• Unlimited liability: partners have unlimited personal liability for business
   liabilities. This means that a creditor of the partnership could require you
   individually to pay all the money the creditor is owed. Your partners
   would then reimburse you for their share of the debt or loss.
• Unlimited liability: business has unlimited liability for partners’ personal liabilities.
• Income tax rates may be higher than the corporate form or organization.
   The partners must claim their share of the profits or losses on their personal returns
• Generally, a partnership exists as long as the partners agree it will, and as
   long as all of the general partners remain in the partnership.
   (Partnership dissolves upon death of a general partner.)

General partnerships are made up of the two or more persons, called general partners, who enter an agreement to conduct business for a profit. General partners have a fiduciary duty of loyalty and trust to the other partners and must subordinate their personal interests to those of the partnership.

Basic Characteristics

For most of its basic characteristics, a partnership is similar to a sole proprietorship; yet in other respects it is similar to a corporation. Under state and federal tax law, a partnership has the following characteristics:

1) A partnership may be created without formalities, much like a sole proprietorship. Two people merely need to agree to own and conduct a business together to create a partnership.

2) Partners each have unlimited liability for the obligations of the business. If the business becomes insolvent, business creditors may require a partner to pay a partnership liability from his individual assets, such as his house and his bank accounts. However, a partner's personal creditors have first priority to that partner's assets, while partnership creditors have first priority to partnership assets.

3) A partner, merely by being an owner of the business, has a right to manage the business of the partnership. He is an agent of the partnership and may make the partnership liable for contracts, torts, and crimes. Because partners are liable for all obligations of the partnership, in effect, each partner is an agent of the other partners. Each partner may hire agents, and every partner is liable for the agents' authorized contracts and for the liabilities that the agents incur in the course of their employments.

4) A partnership is not an employer of the partners, for most purposes, as a result, for example, a partner who leaves a partnership is not entitled to unemployment benefits.
5) Partners are fiduciaries of the partnership. They must act in the best interests of the partnership, not in their individual interests.

6) The profits or losses of the business are shared by the partners, who report their shares of the profits or losses on their individual income tax returns, because the partnership does not pay income taxes. Nonetheless, a partnership does keep its own financial records and must file an information return with the Internal Revenue Service. (The federal income tax return filed by a partnership is merely an information return, in which the partnership indicates its gross income and deductions and the names and addresses of its partners. I.R.C. 6031. The information return allows the Internal Revenue Service to determine whether the partners accurately report partnership income on their individual returns.)

7) A partnership may own property in its own name.

8) A partnership usually may not sue or be sued in its own name. The partners must sue or be sued.

9) A partner may not sue his partners. His sole remedy is to seek an accounting between the partners.

10) A Partner's ownership interest in a partnership is not freely transferable. The purchaser of a partner's interest does not become a partner, but is entitled to receive the partner's share of the partnership's profits.

11) Generally, a partnership has no life apart from its owner. If a partner dies, the partnership dissolves and may be terminated. Under certain circumstances, however, the partnership may continue after the death of a partner.

Creating a Partnership

No formalities are necessary to create a partnership. Two persons may become partners in accordance with a written partnership contract or partnership agreement. They may agree orally to be partners, or they may become partners merely by arranging their affairs as if they were partners. If partners conduct business under an assumed name, in NY City, a Business Certificate is required to be filed in the appropriate County Clerk's Office.

Brooklyn 360 Adams St., Room 189, Brooklyn, NY 11201 (347) 404-9750
Bronx 851 Grand Concourse, Room 118, Bronx, NY 10451 (718) 590-3682
Manhattan 60 Centre St., Room.103B, New York, NY 10007 (646) 386-5955
Queens 88-11 Sutphin Blvd., Room 105, Queens, NY 11435 (718) 298-0600
Staten Island 130 Stuyvesant Place, 1st Floor, Staten Island, NY 10301 (718) 390-5396

Also, be certain to obtain all required local and municipal business licenses before commencing business. (Business Licensing)


When people decide to become partners, they should employ a lawyer to prepare a written partnership agreement. Although such an agreement is not required to form a partnership, it is highly desirable for the same reasons that written contract are generally preferred. In addition, the Statute of Frauds requires a writing for a partnership having a term exceeding one year.

When there is no written partnership agreement, a dispute may arise over whether persons who are associated in some enterprise are partners. For example, someone may assert that he is a partner and therefore, claim a share of a successful business. More frequently, an unpaid creditor may seek to hold a person liable for a debt incurred by another person in the same enterprise.

Contact us for help.

^ top ^