I wrote about some advantages and disadvantages of a sole proprietorship.  The next easiest entity structure to form is a general partnership.   A general partnership is similar to a sole proprietorship except there are at least two owners.  

Below are some (again, NOT all) advantages and disadvantages of a general partnership:

ADVANTAGES

• Taxed once – all business profits and losses flow through to the partners (also disadvantages).
• Formality is limited – there is relatively very little formality to starting a business as a general partnership.  It can be as simple as an oral agreement.  I think we all know that “oral agreements” of any sort are very risky in today’s world.   I’d advise a written Partnership Agreement.
• Can report on the cash basis – for tax purposes.
• Can file for bankruptcy – for bankruptcy purposes, a general partnership is considered a separate entity – separate from its partners – and can file for bankruptcy under the Bankruptcy Code. (Note – insurance companies and savings institutions cannot file for bankruptcy regardless the entity structure)

DISADVANTAGES

• Liability – partners are liable for obligations of the partnership.  Partners can also be sued along with their partnership in the same action (but must be named separate from the partnership)
• Entity life – the partnership may dissolve after the death or dissociation of a partner unless the partners have agreed otherwise. 
• Transferability is limited – there must be unanimous consent of all partners to transfer one’s interest.
• Self employment tax – because all partners are considered general partners, usually all flow- through trade/business income is subject to self employment tax – Social Security and Medicare taxes.

All partnerships are considered general partnerships unless stated otherwise. Here are a few additional facts about general partnerships you should know:

• All partners are general partners (unless the agreement states otherwise).
• All partners share in management.
• New partners must be approved by all existing partners.
• All partners are personally liable for partnership obligations.
• If a partner is leaving the partnership, he/she must give notice to creditors prior to withdrawal; otherwise you are still on the gook for those obligations.
• All partners have the apparent authority to bind the partnership (and therefore the rest of the partners), thus, it is important when a partner leaves the partnership that appropriate public notice is given. 
• Unless the partnership states otherwise, profits and losses are shared equally among partners (even when capital contributions are not equal!!).
• No rights to distributions.
• When more than 50% of a partnership interest changes or withdraws, the partnership is liquidated for tax purposes.

See a professional when making these decisions! Every situation is unique and must be considered separately.

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