Starting a Business – General Partnership (Part 3 of 7)
In a general partnership, agency theory applies wherein each of the partners can bind the entire partnership. Each partner also incurs personal liability, but benefits from what is termed "pass through" tax treatment. "Pass through" tax treatment means that although the partnership files an information sheet with the state, income passes through the entity and is taxed via each partner's individual tax return. A partnership requires some form of an agreement (in writing or oral) but this document does not have to be filed with the state.
The advantages of general partnerships include: no individual liability, taxation passes through to the individual and the entity itself is not taxed, flexibility to expand the scope of the business, the ability to spread losses, and no filing formalities involved.
The disadvantages are that the you may be liable for others, management control is divided, and others can speak for you and bind the partnership.
