General Partner: Definition, Role, Examples, and Main Benefits

What Is General Partner?

A general partner is one of two or more investors who jointly own a business that is structured as a partnership, and who assumes a day-to-day role in managing it.

Key Takeaways

  • A general partner is a part-owner of a partnership business and is involved with its operations and shares in its profits.
  • A general partner is often a doctor, lawyer, or another professional who has joined a partnership in order to remain independent while being part of a larger business.
  • The general partner may be held personally liable for the debts of the business.

Understanding General Partner

A general partner has the authority to act on behalf of the business without the knowledge or permission of the other partners. Unlike a limited or silent partner, the general partner may have unlimited liability for the debts of the business.

General partners typically bring specialized knowledge and skills to the partnership and contribute to its pool of contacts and clients. Since they share management responsibilities, each has more time to devote to their respective professional duties.

The main benefit of a partnership is that it isn't taxed separately. In other words, the IRS (Internal Revenue Service) doesn't require partnerships to pay corporate taxes on profits. Instead, each partner receives their share of the profits as income and file and pay their own taxes.

On the flip side, a general partner may be held personally responsible for the liabilities of the partnership. For example, a patient might sue a doctor for medical malpractice. In some cases, courts have allowed the client to proceed against all of the general partners in the medical practice.

If the court enters a judgment in favor of the client, all the general partners would be financially responsible. In fact, the general partner with the most money invested in the business could bear a larger proportion of the penalty than the general partner whose alleged malpractice caused the suit.

If a general partner is ever required to meet the partnership's financial obligations, their personal assets may be subject to liquidation.

The general partner shares the expenses and responsibilities of operating the business and shares in the profits if it is successful.

Partnership Vs. Limited Partnership

A partnership is any business entity that is formed by at least two people who agree to create a company and share in its expenses and profits. This type of arrangement is particularly appealing to legal, medical, and creative professionals who prefer to be their own bosses but want to expand their business reach.

A partnership also offers a pool of investment for building and maintaining a business on a scale that might be beyond the resources of a single individual. In such cases, each professional becomes a general partner under the terms of the partnership agreement. They share the expenses and responsibilities of operating the business and share in the profits if it is successful.

In the case of a limited partnership, only one of the partners will become the general partner while the others will have limited liability. That is, their responsibility for debts is restricted to the amount they invested in the business. A limited partner is primarily an investor in the business who does not take an active role in its operations.