Our International Business Planning Lawyers Can Help You Create a General Partnership for Your Business Ventures in the United States
When you’ve teamed up with a partner and are looking to form a business in the United States, forming a general partnership (GP) might be the best option to protect your legal interests. This business structure allows two or more individuals to co-own and operate a company for profit.
At MEG International Counsel, our international business planning lawyers help ultra-high-net-worth entrepreneurs in Mexico and Latin America create general partnerships and other legal structures to protect their U.S. business interests. Contact us today to learn more.
Key Characteristics of a General Partnership
Each type of business structure has its own advantages and disadvantages. The key characteristics of a general partnership are as follows:
- Ease of formation. General partnerships are one of the simplest business structures because they do not require filing any formal legal documents in most states. The partnership begins when the co-owners start operating a for-profit business together, although a written partnership agreement is still recommended to document the responsibilities of each partner.
- Equal control for co-owners. In a general partnership, each partner has an equal right to control of the operations and management of the business. Major decisions typically require unanimous agreement among partners.
- Unlimited liability. All of the partners have unlimited liability and are liable for all of their own acts and omissions and those of the general partnership and of the other partners. Each partner is also liable for all debts and obligations of the GP.
- Profit and loss sharing. Unless otherwise agreed, partners share equally in the profits and losses of the business. If the circumstances warrant, partners can define their own split in the partnership agreement.
- Pass-through taxation. A general partnership itself does not pay income taxes. Instead, each partner reports their share of the partnership's profits or losses on their individual tax returns.
When a General Partnership Makes Sense
The general partnership structure can be advantageous in the following cases:
- You’re completing a short-term project. General partnerships work well for businesses focused on short-term projects where partners anticipate only temporary co-ownership.
- You’re concerned about cost. Forming a general partnership lets you avoid the extensive legal formalities required for corporations or LLCs, thus offering a cost savings.
- You want tax flexibility. Pass-through taxation avoids the corporate double taxation issue, where profits get taxed twice.
- You want to maintain control. Partners maintain full operational control without interference from outside ownership.
When You Should Consider Other Alternatives for Your Business in the United States
In an industry where liability exposure could be substantial, it’s best to take action to limit your risk. In a general partnership, all partners are personally liable for the debts and obligations of the business. This means that if the business gets sued or cannot pay its debts, the partners' personal assets (e.g., houses, cars, savings) could be at risk. This is a major drawback compared to other business structures like limited liability companies (LLCs) or corporations, which offer personal asset protection.
General partnerships may also find it more challenging to raise capital or secure financing from investors or lenders, as there is no centralized management structure, and all partners are equally liable.
MEG International Counsel Can Help You Form a U.S. Business
The right business structure depends on your specific goals, tolerance for risk, need for investment capital, tax situation, and growth plans. Turn to MEG International Counsel for tailored legal solutions that fit the needs of Mexican and Latin American entrepreneurs who want to enter or expand within the U.S. market. As dually licensed and bilingual attorneys who speak your culture, Antonio Gastélum and María Elia Gastélum will ensure a seamless translation of your vision into a legally sound and compliant business structure.