Is there Any Reason to Form a General Partnership?

Logo for Quora, where Dana Shultz answered a question about whether 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
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

2 comments

  1. selgamal says:

    Hi Dana,

    You have a great blog!

    I am not a US citizen, and I am looking into partnering with a couple of American friends and starting a business in the US with equal shares. I have a B1/B2 visa, can I legally make this investment on a visitor status? And will me rights to the business be guaranteed?

    Also I am concerned about access to my share of profit, flexibility of developing the operations and ability to exercise control over the business. What form of business do you recommend in my situation?

    Can I work for this company remotely (online) from my country if the only compensation I am getting is my share of profit? Is that allowed?

    Thank you for your help!

    • Dana says:

      I’m sorry, but you have asked too many questions, and they are too broad in scope, for them to be answered here. You need to retain a qualified lawyer to advise you.