Can a Partnership Be Incorporated: Everything to Know
A partnership can be incorporated and you can incorporate a general partnership and form a business entity with limited liability.3 min read
If you're wondering, can a partnership be incorporated, the answer is yes. You can incorporate a general partnership and form a business entity with limited liability.
What Is a Partnership?
A partnership is a form of business where there is more than one owner and the business is not operated as a corporation or a limited liability company (LLC). The partners share the profits and liabilities of the business. A partnership can be formed between individuals, trusts, corporations, other partnerships, or any of these entities.
Should You Have a Partnership Agreement?
A partnership is formed as soon as you start a business activity with another person, irrespective of whether or not you have executed a written agreement. However, it's always better to have a written partnership agreement setting out the terms for conducting the business together. The agreement should also be clear on the matter of distributing profits and losses of the business. In the absence of a written agreement, the partnership laws of the state govern the partnership business.
Partnership vs. Sole Proprietorship
A partnership is like a sole proprietorship business except that it has more than one owner. It shares the following similarities with a sole proprietorship structure:
- Business income is taxed in the hands of the owners.
- The business benefits from the talent and skills of the owners.
- It is easy to start and terminate.
- It has limited formalities with which to comply.
- The owners are personally responsible for liabilities of the business.
- It has a limited duration since it is dependent on the life of the owners.
- It is difficult to raise capital.
Can a Partnership Be Incorporated?
A general partnership is an unincorporated entity. It is a simple business structure with two or more owners in which the owners are fully exposed to business liabilities. For example, if the business takes a property on lease, each of the partners will be personally liable for payment of rent and damages to the property.
Moreover, each partner acts as a representative of the business, and their actions bind the company without approval of the other partners. Thus, you would be responsible even for the actions and omissions of your partners, making you vulnerable to lawsuits. As a greater implication, creditors can pursue your personal assets irrespective of which partner created the liability.