General Partnership

Partnerships are associations between two or more persons to carry on a business. The definition of “person” here is very broad and can be an individual or an entity, such as a U.S. citizen, nonresident alien, resident alien, corporation, limited liability company, trust, or other type of partnership. However, there are no registrations to file, and a written partnership agreement is not required, although it is usually a good idea.

The partners of a general partnership are jointly liable for the debts, claims, or other obligations arising from the partnership. There is an unlimited personal liability for claims against the business, even those resulting from another partner who is acting for the business. From a tax perspective, general partnerships are like sole proprietorships. That is, they are pass-through entities and pay no tax on their own. All partnership gains, losses, credits, and deductions are taxable to the partners individually. While the partnership pays no taxes, it does report the taxes because it is required to determine each partner’s share. Thus, as with a sole proprietorship, the partners derive no preferable tax treatment (aside from being able to divide the tax liability between two or more entities) by holding the business as a partnership.