- General Partnerships are less complicated and expensive to organize and operate than Corporations.
- From a legal standpoint, the General Partnership is a distinct entity from its owners.
- General Partnerships encompass significantly more risk than Sole Proprietorships because each partner has unlimited liability for the obligation of the partnership, including acts of other partners and agents.
- Partners are entitled to tax-free transfers on the contribution of cash or property to the General Partnership in exchange for a partnership interest.
- The use of debt or equity financing will not substantively affect the taxation or operation of the partnership, however, debt will affect a partner’s individual basis in the partnership.
- Income earned through the General Partnership is taxed at the owners’ tax rates, even if the partnership reinvests the income back into the business and makes no distributions to owners.
- Losses generated by the partnership will be deductible on the tax returns of the partners to whom those losses are allocated.
- Bottom Line: General Partnerships are useful for joint ventures because permanence is not necessary.
This checklist is not intended to be legal or tax advice. Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses. Our skilled Chicago attorneys can help counsel you on entity choice, filing proper documents with the state, and drafting partnership agreements. Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.
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