While general partnerships are affordable and simple to form, there are a few important details you should know before establishing one.
Advantage: Easy to CreateThe biggest selling point of a general partnership is that they are quite easy to create. Under Florida law, any two people working together for profit is considered a partnership.
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Unless you formally incorporate into another type of business entity, you are characterized as a general partnership. Calling it a “joint venture” has the same result. For purposes of both state law and taxation, you are a general partnership. You need not file anything at all to get started.Disadvantage: Easy to Dissolve
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Like other business entities in Florida, general partnerships rely on state statutes to provide default rules for all aspects of governance. If you don’t have a formal agreement, general partnerships are just as easy to dissolve as they are to create. There is obviously a protocol for winding up and closing business. However the process is easier in the sense that there are on required filings.
Advantage: Flow of Personal Income
A general partnership allows for all partners involved in a business to directly pass through profits and losses to into their personal income taxes. This is similar to limited partnerships and LLCs.
So the income generated from the partnership is taxed at their personal income tax rates rather than as a separate business entity. This is great for small businesses, where immediate cash flow and profits can be a huge struggle.
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Disadvantage: Little Protection
As a general partnership, all partners are liable for business debts and any legal issues that arise. There is no formal legal protection in place because you don’t incorporate the business into a separate legal entity. And this exposure to liability renders general partnerships as bad vehicles for business in most cases. It may make sense where both partners are incorporated entities.
In those cases the partners may prefer to form a new entity anyway. This vulnerability to liability is probably one of the largest downsides to a general partnership. Make sure that you are careful with products, contracts, disclaimers, and so on.
Advantage: Flexibility
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