Is there Any Reason to Form a General Partnership?
A short while ago, I answered a Quora question about whether and why a startup might want to form a general partnership. The question and my answer are paraphrased, with emphasis added, below.
Q. What are some of the reasons a business might organize itself as a general partnership? Considering all the liability risk that general partners might potentially face, why not organize as a limited liability company? Was there an era when the general partnership was an attractive form and, if so, why?
A. The LLC is a fairly recent invention – ~20-30 years old, depending on the state (assuming you are asking in the U.S.).
Before LLCs, the reason to form a general partnership was simplicity and lack of formal requirements in comparison to a corporation. However, as you note, the price of a general partnership is unlimited personal liability.
The LLC was invented to carry through (most of) the simplicity of the partnership, adding the limited liability of a corporation. If you will, it is a hybrid of the two.
In my practice, I have formed many corporations and LLCs for clients. I have never had occasion to form a general partnership.
Related post: Can I Sell a Partnership Interest in California?
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
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