A general partnership is created automatically, and possibly without intent, when two or more persons engage in a business for profit. A general partnership can be quite flexible and simple in its organization and operation and it acts like a sole proprietorship in that it does not offer any protections from liabilities. Of course, there are different kinds of partnerships, to include, limited partnerships and limited liability partnerships, but this article will concentrate solely on the general partnership.
California General Partnerships are governed by California law and by the terms negotiated by the general partners. These terms are typically spelled out in a written general partnership agreement. The agreement can be oral, but this is not advised. The terms agreed upon and documented can be quite different than California state laws. However, absent a particular term spelled out in your partnership writing, California law will prevail on how to govern your general partnership. For instance, most states prescribe general partnership profits will be divided equally among the partners in proportion to their ownership interests. However, the partners can, in their written partnership agreement, divide profits differently than the division of their ownership interests, and the agreement will override state law.
This fact underscores the need for a partnership agreement. Otherwise, the partnership will by default be governed by state law. The laws set forth by state law may not be appropriate for every partnership. For the most part, however, the default state rules are fair and well-balanced.
Overall, the management and operation of a partnership can be extremely simple. If you would like more direction on your general partnership or another business entity, contact us today to schedule your comprehensive Business Building Benchmark. As your personal legal advisors we will identify any liability issues you may be facing and what you need to do to fix them. Normally, this session is $1250, but if you mention this blog post and we still have room on our calendar this month, we will waive that fee.