What is a General Partner
A general partner is an owner of a partnership who has unlimited liability. A general partner is also usually a managing partner and active in the day-to-day operations of the business. Because any partner in a general partnership can act on behalf of the entire business without the knowledge or permission of the other partners, being a general partner offers poor asset protection.
If a general partner is ever required to meet the partnership's financial obligations, his or her personal assets may be subject to liquidation. In the case of a limited partnership, only one of the partners will be the general partner and have unlimited liability. The other partners will have limited liability as long as they do not take an active role in managing the business, so their personal assets will not be at risk.
BREAKING DOWN General Partner
A partnership is a business entity formed when at least two or more people agree to go into business together. General partners typically create a partnership agreement to spell out the details of their partnership. Unlike other business entities such a corporation or a limited liability corporation (LLC), no state filing is required to form a partnership.
Benefits and Disadvantages of General Partnership
A partnership can be a beneficial choice of business entity for legal, medical or creative professionals who want to expand their business reach. For example, an attorney or medical doctor may choose to partner with other professionals on the same field to build or expand a practice. Each professional becomes a general partner under the terms of the partnership agreement. General partners typically bring specialized knowledge and skills to the partnership, and also contribute to the partnership's pool of contacts. Because the general partners share management responsibilities, more time is available for general partners work on business development and growth.
The disadvantages of being a general partner pertain to the issue of liability. General partners are jointly and severally liable for the partnership's legal obligations including contracts and personal injury suits. For example, a group of medical doctors sharing an office space, support staff and accounting services can legally be considered a partnership where each of the doctors is a general partner in the practice. When a client files a lawsuit against one of the doctors for professional misconduct, courts have allowed the client to proceed against all general partners in the medical practice. If the court enters a judgment in favor of the client, all general partners would have to pay the judgment and the general partner with the most money would have the most to lose even if she or he did not commit the misconduct.
General partners share business profits and losses equally unless the partnership agreement states otherwise. Additional partnership terms usually also include provisions about how remaining shares of the partnership will be divided when a partner withdraws from the business. State partnership law applies when general partners do not spell out terms in their partnership agreement.