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 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.

General Partnership Issues

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.

Partnership Terms

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.

RELATED TERMS
  1. General Partnership

    A general partnership is an arrangement by which two or more ...
  2. Limited Partner

    A limited partner is a business partner whose liability is limited ...
  3. Partnership

    A partnership is a formal arrangement in which two or more parties ...
  4. Schedule K-1

    A Schedule K-1 is a document used to describe incomes, losses ...
  5. Subscription Agreement

    A subscription agreement is an application by an investor to ...
  6. Uniform Partnership Act (UPA)

    The Uniform Partnership Act (UPA) provides governance for business ...
Related Articles
  1. Taxes

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  2. Insights

    Limited Liability Partnership (LLP): The Basics

    Limited liability partnerships (LLPs) are a flexible, legal and tax entity that allows partners to benefit from economies of scale while also reducing their liability.
  3. Small Business

    Using Life Insurance as a Business Succession Plan

    Life insurance can be a good succession plan tool for business partnerships.
  4. Managing Wealth

    Protect Your Personal Assets

    A family limited partnership (FLP) can go a long way toward securing your family's property.
  5. Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
  6. Financial Advisor

    Partners Group: Investment Manager Highlight (PGHN)

    Get an inside look at some of the key executives and the investment approach of the global private equity investment firm Partners Group.
  7. Managing Wealth

    Key Questions to Ask Before Moving in Together

    Moving in together is a big step. Here are some key financial questions to ask your partner before you make the move.
  8. Investing

    Buying A Home As A Couple: What Changes, What Doesn't

    If you are considering buying a home as a couple, make sure you know what changes if you and your partner aren't married.
  9. Small Business

    What is Unlimited Liability?

    Unlimited liability means that the owners of a business are liable for the entire amount of debt and obligations of that business.
RELATED FAQS
  1. What is the difference between a silent partner and a general partner?

    Understand the difference between a person designated as a silent partner and a general partner under the partnership business ... Read Answer >>
  2. How are business decisions made in a partnership?

    Understand how partners in a business can tackle decision making, and learn the options available for partnerships to develop ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center