What Is a General Partnership and Why Is It Important for Business Owners To Know About It?
Two brothers agree to invest in several tracts of real property and make some money. The brother who is an engineer is responsible for using his engineering skills to enhance the value of the properties; the other brother is responsible for marketing and administrative services, such as obtaining the title and paying taxes. They do not enter into a written agreement. Later, someone is injured on the property. Which brother pays?
If the case heads to litigation, the court will likely ask “did the brothers form a general partnership?” Why will the court ask and seek to answer this question? Because it affects who is responsible. Indeed, the lawyer representing the aggrieved person will likely insist on going down the line of inquiry. As discussed later, it is in his or her client’s best financial interest for the court to conclude there is a general partnership.
With the advent of limited liability companies (LLCs), it is easy to forget about the existence of general partnerships. Everyone seems to think, with so many forms of companies out there, that no matter how business is conducted, business debt and liabilities are business debts and liabilities and that the owners of a business will be protected from liability. But the simple truth is, general partnerships are still around, and business owners frequently form a general partnership, oftentimes without even realizing that they do so. And one of the key characteristics of a general partnership is that each owner is fully liable for the general partnership’s obligations with their personal assets.
In this multi-post series, we will look at what a general partnership is, how it is formed, and some of the implications of carrying on business as a general partnership. Please look for Post 2 on this series in the near future.
 This series is loosely based on the laws of New York and Texas. Because most state laws on general partnership are based on a model statute, however, many of the general principles we discuss here may be found in other state statutes as well, though case law interpreting such statutes may vary.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; firstname.lastname@example.org, or www.mcbrideattorneys.com.