General Partnership | Overview With Advantage & Disadvantage


The Uniform Partnership Act defines a partnership as an association of two or more persons to carry on as co-owners of a business for profit. Most general partnerships are evidenced by a written agreement called Articles of Partnership. Though these articles are not required by law, most individuals involved in partnerships agree it is in the best interests of all to have a written agreement.

Besides, the articles should be recorded with the clerk of the local court as a matter of public record for the protection of all individuals associated with the partnership. Articles of Partnership are designed mainly to spell out the contributions made by each partner to the business, whether by money or property, and the responsibilities of the partners in the firm.

The following are the different types of partners that may be involved in partnership activities:

  1. Ostensible (general) partner. Active in the business and publicly known as being a partner.
  2. Active partner. Active in the business and may or may not be publicly known as being associated with the firm. Secret partner. Active in the firm but not presented publicly as a partner.
  3. Dormant partner. Inactive in the firm and not presented publicly as a partner.
  4. Silent partner. Inactive in the firm but can be presented as being associated with the partnership.
  5. Nominal partner. Not a partner in the firm but held out publicly to be a partner, usually for prestigious reasons. In some cases, these partners can be held liable for partnership activity if their names are used to represent the firm.
  6. Sub partner. Not a partner but contracts with an active partner so as to participate in the partner’s business and profits.
  7. Limited partner. Not involved in managing the part, therefore, his or her liability is limited to the amount i
    and no more.

Here are some of the more common components of a partnership:

  • name of the partnership
  • purpose date of formation
  • address
  • name and address of partners
  • duration of the partnership contributions made by each partner
  • how business expenses are handled
  • division of profits and losses among partners duties and responsibilities of each partner
  • salary and draw of each partner
  • procedure for selling the partnership interest
  • method of accounting and record-keeping
  • handling the death of a partner
  • how to change the partnership agreement
  • how to handle disagreements dealing with absence and disability
  • required and prohibited actions
  • protection of remaining partners if a partner dies
  • provisions for the retirement of partners

Advantages to the general partnership form of legal structure

  • Easy to form. Procedures and expenses are minimized.
  • They have enhanced capital availability. Two or more people will be providing and searching for capital. In addition, funding sources are more likely to entertain financing requests because of the broader capital base.
  • Low tax rate. General partners are taxed as individuals. The individual tax rate is typically lower than that corporation.
  • Better decision-making capability. Two heads are better than one.
  • Higher quality employees. Partnerships tend to attract employees because of the possibility of becoming a principal in the firm.
  • Managerial flexibility. Generally, important decisions can be made quickly, although not as fast as in a sole proprietorship.
    Limited government interference. Like sole proprietorships, partnerships are normally free of extensive governmental scrutiny, although compliance with regulations is a must.

Disadvantages inherent in the general partnership include the following:

  • Unlimited liability. The general partners are personally liable for the debts of the organization. General partners can legally bind each other. This is why it is essential to know intimately the partners involved in the firm. Make sure all general partners are credible.
  • Lack of continuity. Usually, a general partnership has a limited life and is terminated on the date specified in the Articles of Partnership or upon the death of a general partner. Termination can be avoided by stating in the articles that the partnership is perpetual.
    Divided authority, General partners, may disagree, causing organizational disharmony.
  • Profits divided. All general partners share profits.
  • Scarcity of suitable partners. Appropriate partners can be difficult to locate.

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