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General Partnership

What is a General Partnership or GP?

A general partnership is an organization formed to act as an artificial entity or artificial person to carry on or conduct business. A general partnership is composed of at least two general partners (persons or organizations).  Each partner may direct and manage the business (unless limited by agreement) and each partner carries full liability for all debts and financial obligations of the business, as well as full responsibility for all errors, omissions, and negligence of the business.

Except for sole proprietorships, general partnerships are the next most basic form of business structure.  But watch out that all partners are equally and entirely responsible for everything that affects the business.  That is, there is absolutely no limitation of a partnerís liability under this form of business organization.

Other than an assumed name filing with each county clerk where the general partnership conducts business, normally no other formation filings with a government agency are required (therefore, there are no filing fees to form a general partnership).  In fact, a general partnership may be formed by an oral agreement, or by a handshake.  Of course, proving what the agreement is from each partnerís viewpoint is an entirely different matter. Without a formal written partnership agreement between the partners, the Texas legislature will dictate the default terms between the parties.  So either know the law and its application, or retain a Texas lawyer to guide you through this area.

Input from your certified public accountant on the choice of entity is an absolute must before the entity is organized.  Your CPA knows your tax situation, and his or her counsel more often than not dictates their preference for the choice of your entity.  I regularly assist clients in the organization of their Texas general partnerships.  The counsel of a Texas attorney is especially critical prior to forming the entity because two or more partners will own the general partnership.

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