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Understanding business formation: General partnerships – II

On Behalf of | Aug 31, 2016 | Business Organizations |

In a previous post, we began discussing how nascent entrepreneurs here in Utah will need to make a host of important decisions when they decide to bring a product or service to market from the financial and the tactical to the logistical and, of course, the legal.  

Regarding this last point, we began discussing how entrepreneurs have a host of business formation options here in Utah and how many elect to go with the platform of the general partnership. We’ll continue this discussion in today’s post, providing more background information about this method of organizing a for-profit business.

Duties and liability

In general, all partners are considered fiduciaries of the partnership, meaning they are always required to put the interests of the partnership above their own.

Due to their ownership interest, partners are granted the right to actually manage the business, such that they can act as its agent, executing contracts, making hires and taking other important actions that are binding upon the partnership and, by extension, their partners.

Indeed, the law declares that partners have what amounts to unlimited liability for the obligations of the partnership. This means that in the unfortunate event of insolvency, business creditors could theoretically seek to collect via the individual assets of a partner or partners.


It may come as a surprise to most people to learn that the actual partnership does not pay income taxes, rather the individual partners are required to report their profits or losses on their individual returns.

This doesn’t mean that the partnership is somehow exempt from financial recordkeeping, as it is still required to file an informational return with the Internal Revenue Service outlining its partner information, gross income and deductions. This informational return can then be used by the agency to determine whether the tax returns of individual partners are accurate.  

Purchase and death

Those individuals considering a purchase of a partner’s ownership stake should be aware that it’s not freely transferrable under state law. In other words, while the purchaser will be entitled to the previous partner’s share of the partnership’s profits, they don’t actually become a new partner in the eyes of the law.

Furthermore, in the event of the untimely demise of one of its partners, state law dictates that the partnership effectively dissolves and can be ended.

Here’s hoping the forgoing discussion proved helpful. Consider speaking with a skilled legal professional if you have questions or concerns about general partnerships or business formation in general.