General Partnerships

All California general partnerships are now governed by the Revised Uniform Partnership Act, which considers the general partnership to be an entity separate from its partners; a change in partnership membership alone does not terminate the partnership. This is the "default" form of business for businesses with more than one owner.

Agency and Liability. Each partner is an agent for the partnership and may bind the partnership. Likewise, general partners are jointly and severally liable for partnership debts, including the negligence and torts of the other partners and the partnership's employees while they are acting within the course and scope of their duties. For some lawyers and accountants, this has proven to be a very costly feature, only recently overcome by legislation authorizing a new form of doing business - the limited liability partnership. Under the Revised Uniform Partnership Act, a person admitted as a partner into an existing partnership is not liable for pre-existing partnership debts.

Joint Ventures: These are general partnerships formed for a temporary or limited business purpose; the agency of the partners is limited to these specific business purposes.

How Formed? Too easily! (Which may be a problem.) A general partnership may be formed by accident. Parties who act as partners will likely be treated as partners, unless they have affirmatively selected another form of doing business. Merely representing oneself as a partner may result in one becoming an ostensible partner or in the creation of a partnership by estoppel. None of these accidental partnerships is recommended, of course. Partnerships may be formed by oral or written agreement; only the written agreement is to be recommended. A fictitious business name statement may need to be published and filed; it is advisable to file a statement of partnership with the Secretary of State and record the same statement in each county in which the partnership owns real property.

Taxation: Partnerships are not taxable entities, but rather "pass through" entities. Trusts, REITs and "S"corporations may have "pass through" elements, but partnerships have the purest form of "pass through" taxation for business entities with more than one owner. A general partner's share of partnership income is "self-employment income" subject to self-employment taxes at the rate of 15.3%. When a partnership has income but does not distribute cash to its partners, the partners must look elsewhere for the cash with which to pay their respective share of taxes on the partnership's income.