The Pros & Cons
| The Pros | • Easy to create. • No limit on partner number or type. • Can be used to hold investments in other businesses and consolidate multiple lines of business. • Flexible allocation of profit, loss, and distributions. • Favorable tax treatment when liquidated. • No double taxation of profits. |
| The Cons | • Requires a separate tax return. • Unlimited liability for all partners (unless an LLC). • Difficult to dissolve or change ownership without substantial planning. • Requires tracking of basis for partners, both inside and outside the partnership. • Individual partner's share of income is subject to self-employment taxes. |
| Is a Good Fits For | • Two established businesses who wish to work as one. • Partners wishing to consolidate multiple entities into one entity. |
A Clarification
A General Partnership is one that all of the partners are actively participating in. There may be times when someone wants to just invest in your partnership (much like buying stock in a corporation), but does not want to do any work. This situation results in what is called a Limited Partnership, which is covered in the next chapter.