Chicago is home to businesses selling every product and service one can imagine. These businesses operate as sole proprietorships, corporations, limited liability companies and partnerships. The needs of the business and its owners determine whether the characteristics of a type of business organization are advantages or disadvantages. For example, a general partnership may offer the perfect solution for an expanding sole proprietorship that is taking on a partner but is not ready to make the leap to the complexities of a corporation.
A partnership is an unincorporated business entity made up of two or more owners who agree to operate a business for profit.
Formation does not require the preparation or filing of any paperwork. Two or more people verbally agreeing to start a business with the intention of making a profit is enough.
Most states have enacted laws requiring the filing of a fictitious or assumed name certificate with a state or local government office handling such matters. A business registers its assumed name by filing an application with the county clerk in the county in which it is located.
The owners are referred to as partners. Although a written agreement between partners is not required, most partnerships have some form of written agreement. The agreement usually covers the percentage of ownership of each partner, the degree of authority of each partner to manage the business, the percentage of profits and losses to which each partner is entitled and any other matters the owners may wish to commit to writing to avoid disagreements.
Authority to Bind and Manage
Unless an agreement says otherwise, each partner has equal rights to manage and conduct business on behalf of the partnership. For example, a partner may enter into a contract to purchase materials on behalf of the business. The contract signed by the partner would be as binding on the business and the other partners as if they had all signed it.
An exception to this is an agreement to sell all the assets of the business. This type of transaction requires the unanimous consent of all the partners.
Personal Liability of the Partners
Partners are jointly and severally liable for the debts and obligations of the business. Jointly liable means that a creditor who obtains a judgment in court for money owed to him by the business may seize the personal assets of the partners. Several liability means the creditor may collect all of what is owed to him from any one or more of the partners without trying to collect from all of them.
Profits and losses of the business are passed through the business and are reported on the personal income tax returns of the individual partners. Absent a written agreement stating otherwise, profits and losses are divided equally.