A general partnership is an association of two or more persons to engage in business for profit as co-owners. Generally, if two or more persons carry on business without using a formal legal structure, the law will presume that the individuals are operating as a general partnership. Each of the general partners has the authority to bind the partnership in the ordinary course of business. A general partnership is generally not liable for federal income tax, state income tax or California franchise taxes. Instead, the individual partners are usually responsible for paying their own taxes on the income each realizes from the general partnership. The general partnership may be dissolved by the decision of at least half of the partners.
Under California law, each of the general partners is personally “jointly and severally liable” for the debts of the business. This means that a creditor to the business is not required to divide a debt between the partners for collection purposes. Rather, any creditor is entitled to obtain 100% of the debt from all the partners collectively or from some of the partners individually or from any single one of the partners entirely. If one or a few of the partners are wealthier than the others, the wealthier partners are likely to be the target of a collection effort. Therefore it can be important that the partnership does not contain an imbalance of one or a few wealthy partners and other, less well financed partners.
Porter Law Group regularly represents general partnerships. We also help general partnerships transition to other forms of business that provide greater protection to the owners’ personal assets. When it comes to selecting a business structure, Porter Law Group can help you reach the decision suited to your business and personal needs.