General Partnership Guide
How general partnerships work and are taxed, the shared liability risk, and why a multi-member LLC is usually the better choice for telecom co-owners.
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What this General Partnership Guide helps you do
A general partnership is what you get when two or more people go into business together without forming an LLC or corporation. It is the multi-owner version of a sole proprietorship: easy to start, cheap to run, and carrying the same fatal flaw - unlimited personal liability, now multiplied across every partner. This free guide explains how general partnerships work, how they are taxed through Form 1065 and K-1s, why joint-and-several liability makes them risky, and why a multi-member LLC is almost always the better choice. Written for telecom owners considering co-ownership: wireless dealers opening a store together, a repair tech partnering with an investor, family kiosks, and master agent operations split between partners.
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General Partnership Guide FAQ's
What is the difference between a general partnership and a multi-member LLC?
Both have multiple owners and both use pass-through taxation - they actually file the same Form 1065 and issue K-1s by default. The critical difference is liability. In a general partnership, every partner has unlimited personal liability, including for the other partners' actions. In a multi-member LLC, the owners' personal assets are protected from business debts and from each other's mistakes, as long as the LLC is maintained properly. For roughly $50 to $500 in formation cost, the LLC removes the single biggest risk of co-ownership.
In a general partnership, yes. This is called joint and several liability. Each partner is personally responsible for the entire business, including debts and obligations another partner creates - even without your knowledge or consent. A creditor can collect the full debt from whichever partner has the most personal assets, leaving that partner to chase the others. This is the main reason general partnerships are rarely the right choice.
Am I really liable for what my business partner does?
How is a general partnership taxed?
The partnership files an informational return (Form 1065) but pays no income tax itself. Each partner gets a Schedule K-1 showing their share of profit or loss, reports it on their personal return, and pays income tax plus 15.3 percent self-employment tax on their share. Note that partners are taxed on their profit share even if the money is reinvested rather than distributed - so plan distributions to cover everyone's tax bill.
Should two wireless dealers open a store as a general partnership?
Almost never. A multi-member LLC does everything a general partnership does - same pass-through taxes, shared ownership - and adds liability protection plus a written operating agreement that defines ownership splits, decision rights, and exit terms. For the price of a state filing fee, you protect each partner's personal assets and avoid the joint-and-several liability trap. Form a multi-member LLC with an operating agreement from day one instead.