General Partnership

If two or more people decide to do business together, a partnership is formed. Unless there is a written partnership agreement, the State of Illinois provides one and sets out the terms of the partnership. A partnership may be formed by oral agreement or formally by written agreement. If a partnership is intended, it is important to prepare a written agreement, even if you intend the terms to be similar to those set forth in the Illinois Partnership Act, because you do not want to get into a disagreement as to either the existence of the partnership or the terms if a dispute ever does arise.

General Partnerships are formed by default without any formalities when two or more individuals conduct business jointly. General partners are personally liable to business creditors. Income and losses are reported directly on the individuals' tax returns. Although not required for formation, a partnership agreement is essential to running a partnership in a professional manner for the long term. The written agreement should set forth:

1) the names and addresses of the partners

2) the relative rights to management and profits of each partner

3) the nature and limitations of the partnership business

4) any restrictions on the activities of individual partners outside the partnership

5) the duration of the partnership

6) provisions concerning dissolution of the partnership

7) the requirements for admission of new partners or transfers of existing partnership interests

8) any other provisions that the partners wish to govern their relationship and the operation of their business. 

A partnership has the advantage of flow through taxation but the disadvantage of unlimited personal liability.  

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