A general partnerships is formed when a business is owned and operated by two or more individuals in which each partner agrees to share profits and liabilities as well as the responsibility for the day to day operations of the company.
The general partnership is advantageous because it allows the pooling of resources, funds, and a shared work load but there are disadvantages, also. Not everyone is partnership material. Some people are more suited to be sole proprietors.
Being involved in a partnership takes patience, understanding, and the willingness to work towards a common goal, which is a successful business relationship.
That is why rules and regulations should be put in place beforehand. Each partner should be aware of his obligations to the company and what is expected of him.
A general partnership agreement should be drafted by an attorney but the use of an attorney is not required by law.
The agreement can be drafted by the partners. Each partner should read it thoroughly, understand what his responsibilities are and what he is agreeing to, sign it, and keep a copy in his own personal files.
What should be included in the general partnership agreement is the equal sharing of all debts and other obligations of the partnership, as well as an equal share of all profits that are generated by the partnership.
Shared liabilities can be a major sticking point in a general partnership if each partner does not take his role seriously or if one of the partners make unwise decisions that may cause the business to lose money or get a bad reputation.
There should always be a meeting of the minds. Business meetings should be held at regular intervals and the business dealings should be made known and discussed at that time.
Loans and other debt payments, business strategies, earnings projections, losses, customer relations, and all things concerning the business should be open for discussion.
Business partnerships should be treated with the utmost respect and before you indulge in such an adventure, you should give your full attention to every detail of the venture.
An accounting of all money spent regarding the business should be made as soon as possible and receipts should be presented. Better yet, an accounting firm should be employed to keep records of all expenditures and income.
An accountant would also be of invaluable service when determining tax liabilities. As an issue, partnerships are not taxed as a business. The partners are taxed individually and each partner pays personal income tax.
The partnership must file an IRS Form 1065 and each partner files his share of the income, or loss, on the Schedule K-1 of Form 1065.
Each partner is responsible for the other partners and for the overall health and wealth of the partnership.
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