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Benefits of a General Partnership

written by: N Nayab•edited by: Linda Richter•updated: 8/18/2010

The benefits of general partnership extend to leveraging pooled resources, better and cheaper access to finance, better accountability, and flexibility.

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    Benefits of General Partnership General partnership is the basic type of partnership where two or more partners remain equally responsible for the business and share assets, liabilities, profit, loss, and management responsibilities of the business. Similar to the practice followed in sole proprietorships, each partner includes his or her share of income or pro rata loss in personal income tax return, and the partnership does not have to pay separate tax.

    General partnership ranks among the most easiest ways to structure a business.

    Image Credit: flickr.com/Aidan Jones

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    Pooled Resources

    The biggest benefit of general partnership is the possibility of pooling resources and expertise. The partners remain equally responsible for running the enterprise and bring with them diverse talents, skills, contacts, and knowledge for the betterment of the business. The partnership thrives when each partner has a specific strength and looks after a specific function or operational task. Business owners thereby acquire the ability to micro-manage the business rather than entrust day-to-day operations to outside managers.

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    Finance

    Another major benefit of general partnership is easier and quicker access to finance, combined with the shared financial commitment among the partners.

    The partners pool their resources, lessening the burden on one individual and making available a substantial amount for investment. The best part is that this corpus comes free of interest or repayment obligations and with no need for cumbersome paperwork or collateral. The presence of many partners lessens the risk on any one partner.

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    Accountability

    In general partnership, all partners have a responsibility for and an involvement in the running of the business, and this creates a system of checks and balances in which each partner is accountable to others for his actions and decisions.

    Partners usually make decisions after mutual consultations and discussions, providing an opportunity to understand the situation from different perspectives and study all aspects of the issue. This increases the quality of decision-making considerably.

    Individual partners responsible for a functional area or performing a specific role, aware of the other partners' presence, puts extra effort to doing the job well, thus contributing to operational efficiency.

    General partnership accountability is a major advantage of this type of partnership over limited liability partnership, where the general partner has the power and freedom to abuse his or her operational freedom at the expense of the limited partners.

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    Simple Framework

    Another advantage of general partnership is its simple nature. General partnership is the easiest way to set up an enterprise with two or more owners, and it requires minimal paperwork. This form of partnership is based on the agreement executed among the partners and does not require a registration or license fee, compared to the tedious procedures to start a limited liability company. The Revised Uniform Partnership Act (RUPA) issued in 1994 governs the terms and conditions of the agreement.

    General partnership allows much flexibility and allow partners autonomy to frame the structure of the business This allows the business to operate in a manner that best suits the partners' needs and also allows revision of the structure as and when required.

    The advantages of general partnership notwithstanding, a major disadvantage is that all partners remain liable jointly and severally for the obligations of the partnership, even when one partner binds all others in an unfavorable contract. The key to overcome such disadvantages and fully exploit the benefits of general partnership is to strike partnership deals only with people of high integrity, or with trustworthy people.