General Partnership Disadvantages

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2. A general partnership is one of the partners have the ability to actively manage or control the business. That means every owner has an authority to make decisions about how the business is run as well as the authority to make legally binding decisions. Unless the partners have an organization assertion, each partner will have equal authority. Partners in a general partnership don't have any limit on their personal obligation for the debts of the business. This means that the partnership could lose not only his investment in the business but a personal asset would have to be used to pay business debts if necessary. Each partner in a general partnership is also "jointly and severally" liable for debts of the business. Joint and severable…show more content…
If they are not structuring their business as a corporation, be aware that a general partnership comes with it the personal liability for all the business’s responsibilities and debts. If the company gets sued into bankruptcy court, all fines are the obligation of the individual partners. Even if a partner is acting on their own, all partners are responsible for the result of those decisions. Another disadvantage is management issues. Partners can make investments from their personal finances and the money invested is then owned by all partners, it’s easy for questions of reimbursement to arise. What happens if one partner didn’t want the company to take that money and doesn’t want the company to pay it back? The same kinds of issues can arise with purchases for the company with decisions on which suppliers to take on. Tax Ownership is partners report their share of the company's profits and losses on their personal tax return. This can often bump partners into a higher tax bracket than they would otherwise be in. (Editors,…show more content…
At the end of the tax year, every managing partner in a limited partnership is taxed on their personal income returns. This means that the taxes are considered to be pass-by, but that means needing to pay the self-employment tax in addition to regular income taxes. Business taxes aren’t imposed on the business itself and the limited partner only pays taxes on any profits that are distributed to them as they would with any other investment income. Another important consideration the limited partnership is general partners in a limited partnership are personally reliable for business debts. This is actually a double disadvantage. Managing members of a limited partnership are responsible for the debts of the business. This means their personal assets can be ordered able to pay for outstanding business debts, just as a sole proprietorship can have this happen. The second issue here is that partners are also personally responsible for the debts made by one another. If one partner creates $100,000 of debt while the other makes $30k of profits, both partners are liable for $35k of debt

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