Disadvantages Of General Partnership

General Partnerships

A general partnership is a relationship existing between two or more persons who join together to carry on a trade or business. Each partner contributes money, property, labor, or skill to the partnership and in return, expects to share in the profits or losses of the business. By combining the credit potential of the various partners, a partnership has greater opportunity for business credit than is generally available to a sole proprietorship. In addition, the assets that are placed in the name of the partnership may often be used directly as collateral for business loans. The pooling of the personal capital of the partners generally provides the partnership with an advantage over the sole-proprietorship in the area of

One disadvantage to a partnership is the potential for conflict between the partners. Of all forms of business organization, the partnership has spawned more disagreements than any other. This is generally traceable to the lack of a decisive initial partnership agreement that clearly outlines the rights and duties of the partners. This disadvantage can be partially overcome with a comprehensive partnership agreement. For example, if there was no initial agreement made about what types of patients two physicians want to treat, one may disagree with the other later on over who should be treated and who should not. Furthermore, the partnership lacks the advantage of continuity. A partnership is usually automatically terminated upon the death of any partner. A final accounting and a division of assets and liabilities is generally necessary in such an instance unless specific methods under which the partnership may be continued have been outlined in the partnership

Not only is a partner liable for contracts entered into by other partners, each partner is also liable for the other partner’s negligence. When two or more physicians or other professionals practice together as a partnership, each partner is liable for the negligence or malpractice of any other partner.

In addition, each partner is personally liable for the entire amount of any partnership obligation. For example, Dr. Smith may be one of ten partners in a medical partnership, but he is not responsible for only 10 percent of partnership obligations. He is responsible for 100 percent-even though he owns only a 10 percent interest. If Dr. Smith’s other partners are unable to pay their respective shares, he must pay the entire amount.

Owners of a partnership have unlimited personal liability. In general, each partner in a partnership is jointly liable for the partnership 's obligations. Joint liability means that the partners can be sued as a group. Several liabilities mean that the partners are individually liable. In some states, each partner is both jointly and severally liable for the damages resulting from the wrongdoing of other partners, and for the debts and obligations of the