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The pros and cons of general partnerships

On Behalf of | Jul 22, 2018 | Uncategorized |

Starting your own small business with other partners is exciting, but certain aspects of it can be daunting. If you have concerns about what type of business structure you should choose, you are not alone.

A general partnership may be a good choice for you depending on your unique business needs. Here are some of the advantages and disadvantages of starting a general partnership. 

Partnership pros

There are plenty of good reasons to form a partnership. The main benefits include the following:

  • Convenience: Creating a general partnership is easy, cheap and requires minimal paperwork. In fact, you do not technically need to file any paperwork to start a partnership. You and your partner(s) form a partnership by going into business. However, you may need to create a partnership agreement or file a “doing-business-as” application with the help of an attorney.
  • Simple taxes: There is a significant tax benefit to having a partnership. A partnership enjoys pass-through taxation, which means losses and profits are simply transferred to each partner. While the partnership will file a tax return as an entity that states its losses and profits, it does not actually pay any income tax. 

This may mean forming a partnership is right for you. 

Partnership cons

However, it is important to consider the downsides of beginning a partnership too:

  • Liability: You will have more personal liability if you are in a partnership rather than a corporation. If you go into bankruptcy or someone sues the business, you and the other partners are personally liable.
  • Management considerations: It can get tricky to manage a partnership when it comes to purchases, taking on clients or making investments. Things can get messy unless there are strict guidelines laid out in a partnership agreement. 

These drawbacks may make you reconsider creating a partnership. If so, a corporation may be better for you.

There are upsides and downsides to each business structure. You must carefully consider which entity type will suit you best.