General partnerships are formed by two or more individual owners associating to carry on a business for profit. There are generally no organizational documents, or other formalities required to form a general partnership. It would be a big mistake for two or more individuals to go into business together as partners without a written partnership agreement.
Assets are typically owned by the general partnership and deployed in the business venture. Problems can arise when business assets are not properly designated as being owned or not being owned by the partnership. Care needs to be given to each asset used by the business to make clear who owns the particular asset in question.
Liabilities, such as for office supplies and the like, are generally owed by the general partnership. In the event the general partnership shall fail, the individual partners are typically responsible for the unpaid debts of the business.
Typically a general partnership is operated under the name of the general partnership. The owners may wish to use a business name different from the name of the general partnership, and may protect the use of the business name by making a fictitious name filing with the Florida Secretary of State.
A new general partnership can generally be created, and assets transferred to it, in a tax free transaction. The profits and losses from the operations of a general partnership are reported on IRS Form 1065 for federal income tax purposes. The separate share of each partner is reflected on the Schedule K-1s to the partnership's tax return. The separate share is then reported on each of the partner's individual income tax return (Typically IRS Form 1040). The general partnership must keep separate books and records for the partnership's financial activities. The State of Florida does not impose an income tax on the profits or losses of a general partnership. The partners report and pay their respective shares of partnership profit and losses. If there is a corporate partner, the partnership must file an information return with the Florida Department of Revenue (Form F-1065). A general partnership obtains an Employer Identification Number for use with its business' bank accounts and empl
A general partnership may have real estate associated with its business operations. As with other assets, the general partnership typically owns any real estate used incident to the business operations of the partnership. If the property is owned by one of the partners, another business entity or a third party, the general partnership typically pays rent to the owner for its use of the real property.
Sale or Exchange
General partnerships typically own all of the assets used in the business, any sale or exchange of the business can be a sale or exchange of the assets and liabilities of the business or of the general partnership interests.
Businesses operated as a general partnership need to actively manage their business risks. The assets and liabilities of the business belong to the general partnership, but the individual partners can be responsible for any partnership debts. So it is essential that the general partnership obtain appropriate insurance coverage (hazard, liability, workers' compensation, and the like). Any unexpected claims that are not covered by insurance can be the responsibility of the individual partners. This is one of the major problems of using a general partnership as a vehicle to operate a business.
In the event of a general partner's death, disability, bankruptcy, or other withdrawal, the general partnership may have to terminate and wind up its affairs. The partner's interest in the general partnership generally becomes part of the deceased partner's probate estate, and are ultimately distributed in accordance with the terms of the partner's last will and testament. Depending on the nature and extent of the business' assets and liabilities, it may be impossible for the heirs and other partners of the business to continue the general partnership's business after a partner's death. As part of the written general partnership agreement, it is very important for the partners to come up with a business succession plan that includes consideration of the death, disability, bankruptcy, retirement, and or other withdrawal of a partner from the partnership.
Dissolution and Winding Up
A general partnership may continue under certain circumstances even in the event of dissolution The partners should consider the income tax consequences to the termination and winding up before they decide to actually end the business operations.
General partnerships can be very useful when the partners are other limited liability entities, such as corporations.
Additional resources provided by the author
Go to http://dor.myflorida.com for a summary of the filing and paying consequences of the various business entity choices in Florida. Or you can go to http://www.irs.gov for a summary of the filing and paying consequences of the various business entity choices for federal income tax purposes.