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 reproduced, 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.).
Pre-LLC, the attraction of the general partnership was simplicity and lack of formal requirements in comparison to the corporation – though, as you note, at the price of 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, a hybrid of the two.
In my practice, I have formed many corporations and LLCs for clients; I have never formed a general partnership.
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.
Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.