Can a general partnership business be incorporated?

Asked over 5 years ago - San Pedro, CA

My partner and I are starting a small business as a general partnership, but I'm confused as to we need/should have it "incorporated"?

Attorney answers (2)

  1. Elena Rivkin Franz

    Contributor Level 9

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    Lawyer agrees

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    Answered . Setting up a separate business entity can have numerous benefits, including tax benefits and liability benefits. You have options ranging from incorporation (c-corporation or s-corp), an LLC, or in your case, a limited partnership. The criteria for deciding which one you may want include your anticipated revenue and what your liability concerns are for the acts of the other partner.

    Although landlords usually require a personal guarantee for newer businesses, you will probably be on the hook personally for what is likely to be your biggest liability: your lease. However, as a general partnership, you are each liable for any act of the other that takes place in the course of your business. This can range from things like bad advice, to a car accident on the way to lunch with a client. A thorough answer to this questions needs more information on your specific circumstances; I'm happy to help answer other questions this may bring up.

    Good luck!

  2. David L Woronov

    Contributor Level 4

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    Answered . A general partnership is not incorporated--it is just a simple entity between two or more parties, and you have full exposure (i.e. full liability). That means that each of you (and your respective assets) are exposed to contracts, leases, personal injuries and other potential liabilities.

    If you and your partner in a general partnership enter into a lease, then each of you is individually liabile for rent payments, damages, etc. in full. You can then try to sue the other partner for contribution (i.e. their "half") but unless/until you can collect from them, you are exposed!

    One option is to form a limited liability company (LLC), and have it sign the lease and all agreements, and have each of you fund the LLC on a 50/50 basis. This will also, if properly set up, shield your personal assets from exposure to possible liabilities for your "partnership's" acts/omissions (in this case, the LLC's acts/omissions). Setting that up does require that it be organized with the secretary of state in your home state.

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