A partnership is a legal business entity in which two or more people have an interest in the ownership. A general partnership is the most basic partnership and assumes that all partners have equal business and personal liability. This type of business structure makes the best use of the strengths and expertise of each partner. A general partnership is used by professionals and small-business owners who desire certain tax advantages and simplified methods of business management.
A general partnership is a typical business structure for legal firms. Many law firms that operate as a general partnership have two or more partners. In most cases, the firm's name includes the last names of each partner such as “Law Offices of Smith & Jones,” or “Smith, Jones & Reed, Attorneys at Law.” A general partnership does not distinguish between the business and each individual partner. Each partner is personally liable for the debts and obligations of the business. All partners are also responsible for one another’s actions. Attorneys are attracted to this type of business structure because they have equal share in the ownership of the business and the profits the business receives. Although this type of business structure leaves each partner vulnerable to liability, attorneys have the legal expertise to keep individual liability to a minimum in a well-structured partnership agreement.
Physicians often form a general partnership to minimize the financial and legal risks of operating a medical practice alone. A general partnership benefits physicians by enabling new doctors who are usually deep in student loan debt to secure business startup loans. This type of partnership also helps reduce overhead expenses by allowing doctors to share office staff. With many medical partnerships, physicians share one facility but maintain an individual practice. Doctors share medical receptionists, office managers, nurses and laboratory and office equipment but do not have to pay for and manage these resources alone. A disadvantage to a general partnership medical practice is the liability exposure. A major medical malpractice lawsuit against one physician can affect the integrity of all other partners who share, and ultimately assume, the liability of the business.
Licensed architects and design professionals often go into business together as a general partnership. Architects who share the same design philosophy and want to reduce startup and operation costs opt for a general partnership business structure. This structure allows each architect or partner to focus on individual strengths such as creativity, design ability or leadership skills while maintaining an equal share in the management and decision-making responsibilities of the business. Architects who do not have their own portfolio or lack overall experience may choose to partner with a more experienced professional to avoid taking on the risks of business ownership alone.
A general partnership is the ideal business structure for husband and wife co-owners because it is the default structure for spouses who do not wish to incorporate. Spouses who go into business together are usually classified as a partnership for the simplicity of startup and for tax purposes. Depending on the type of business, spouses can also elect not to be treated as a partnership when filing federal income taxes so they can maximize credits for Social Security and Medicare taxes.
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