What is a General Partnership? 10 Key Facts for Aspiring Business Owners

 

Opening your own business may feel like stepping into uncharted territory. Of all the decisions you will have to make, one of the earliest and most important will be related to the structure of your business. If you’re starting your business with one or more people and want a very simple, collaborative way to get started, a general partnership might be just what you need.

But what exactly is a general partnership, and is it the best fit for your goals? Let’s take a closer look at this business structure using 10 key facts, in simple terms, so that you can make an informed choice.

1. What is a General Partnership?

A general Partnership is a business owned by two or more people or corporations who operate and divide the profits of a business. Unlike a corporation, a general partnership is not a legal entity separate from the partners. It is registered under the Partnership Act. General Partnership can only be registered provincially.

In this setup:

• Each of the partners contributes something to the business in terms of money, skills, or property.
• The profits and losses are shared among the owners, often based on an agreed-upon ratio.
• The partners are personally liable for the debts and liabilities of the business.

A general partnership is a flexible way to combine resources and talents to achieve a shared vision.

2. How does a General Partnership work?

General partnership is all about teamwork. Each of the partners is expected to contribute his share and actively participate in the running of the business, though tasks can be divided, big decisions usually require everybody’s consent.

Here’s how it works:

• Partnership Agreement: It is the written agreement among partners that covers the basic information: what each partner contributes to the venture, how profit and loss are divided, and how a dispute can be resolved.
• Joint Liability: All the partners are liable for the debts of the business. Creditors can ask for dues from any partner.
• Shared Profits: The sharing of profit is done according to the agreement, and it could be equal or depend on one’s contribution.

General Partnership is a simple and collaborative way of running a business, but clear communication and agreements are key!

3. Benefits of a General Partnership

Here are some benefits:

• Easy to start: It is fast to start a partnership and requires minimal paperwork or formalities.
• Shared workload: Since one has a partner in running a business, it becomes easier to handle and share both tasks and decisions.
• Low Cost: You avoid expensive fees for incorporation and ongoing filings.
• Flexible: It is easy to adapt, as partners can decide on the division of work and profits in an agreed manner.

4. Challenges of a General Partnership

• Unlimited Liability: This means that if your business has any debts, then you could use your own personal assets to pay for those debts.
• Conflicts: Even the best of partners may disagree on a few issues. Clear communication and agreement go a long way but disputes can still arise.
• Short-term in nature: When one of the partners leaves, the partnership will dissolve unless there is an agreement to continue.

5. Legal Liability of Partners

• Register the Business Name: If your business uses other than your name, it should be registered.
• Obtain Licenses and Permits: Most businesses must obtain special licenses before they can operate legally.
• Partnership agreement: Although this is not required legally, it is highly recommended. This will help to avoid confusion and protect all parties concerned.

A general partnership is a simple and affordable way to start a business, but it’s important to know the risks and plan ahead. Need assistance incorporating your partnership? IncorpPro is here to guide and assist you at every step.

6. Tax Implications of General Partnerships

General partnerships are “pass-through” entities, meaning the business itself doesn’t pay income tax. Instead:

• Each partner includes the business profits or losses on their personal tax return.
• Partners can deduct business expenses to lower their taxable income.

This setup simplifies taxes however, good recordkeeping is necessary for compliance.

7. How to Form a General Partnership

It’s so easy to start a general partnership! Here’s how:

• Pick a Business Name: A unique name is preferred and should relate to your business. Check the registry in your province to ensure it is available.
• Draft a Partnership Agreement: Decide on roles, share of profit, and also how decisions are made, and what happens if one partner leaves.
• Register Your Business: Fill out the forms on IncorpPro’s website and make the payment.
• Obtain Licenses and Permits: Depending on the industry you are in, you may need special licenses to operate legally.
• Set up finances: Open a business bank account and agree upon how you will handle the money.

Need help? Let experts at IncorpPro handle the paperwork, while you go through each step in detail to set your dream business up and running!

8. General Partnership vs. Sole Proprietorship

Here’s a quick comparison:

9. General Partnership vs. Corporation

Let’s compare general partnerships with corporations:

10. Is a General Partnership Right for You?

Here are instances where General Partnership works out pretty good:

• You fully trust your partner(s) and you want to share your responsibilities.
• You need a simple and inexpensive way to start a business.
• You’re comfortable with personal liability in addition to shared risks.

But if you want to protect yourself from liability or ensure long-term stability, you may consider the option to incorporate.

Why Choose IncorpPro for Your General Partnership Registration?

• Fast processing with registration completed in just 2 hours.
• Beyond registration, IncorpPro provides a range of services including partnership agreement preparation, trade name registration, and more, all tailored to your business needs.
• Expert guidance to ensure everything is done correctly.
• User-friendly online platform available 24/7.
• IncorpPro offers competitive rates without compromising on quality, providing value for your investment.
• As a member of Corporations Canada, IncorpPro adheres to the highest standards of professionalism and compliance.

Begin the journey of partnership today—reach out to get started!

Conclusion

A general partnership registration is a simple and flexible way to initiate a business with one or more partners. It’s ideal for those who want to be collaborative while keeping things as simple as possible, but it does indeed require an understanding of the potential risks involved.