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What Is A General Partner
A general partner refers to a type of business owner within a partnership structure.
General partners have the responsibility to manage the day-to-day activities of the partnership and play an active role in the business management.
Depending on the type of partnership structure, the general partner may be held personally liable for the partnership liabilities or have limited liability.
For example, a general partner in a limited liability limited partnership will have limited liability whereas a general partner in a limited partnership is exposed to unlimited liability.
In a general partnership, all partners are general partners.
In a limited partnership, you must have at least one general partner and one limited partner.
The title of a “general partner” is more often used in limited partnerships to distinguish between a limited partner and a general partner.
Fundamentally, general partners are responsible to manage the business, have the authority to act on the partnership’s behalf, and are exposed to unlimited liability.
Keep reading as I will break down each of these aspects one by one.
General Partner Definition
How do you define a general partner in business?
A general partner is a person who joins with at least one or more other people to form a business that is operated as a partnership.
The general partner has full management responsibilities of the partnership and can be held legally responsible for the actions of the partnership.
You have general partners in general partnerships, limited partnerships, limited liability limited partnerships.
The general partners have the power to bind the partnership in contracts and with third parties.
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General Partner’s Role And Responsibilities
A general partner’s role is to manage the business operations of a partnership.
In fact, a general partner has the authority to act on the partnership’s behalf without obtaining any authorizations or permission from other partners.
Typically, general partners have expertise in a specific field or area allowing the partnership to serve a specific type of clientele.
For example, in a law firm, a general partner may be specialized in corporate law, commercial law, intellectual property, or any other field of law allowing the partnership to recruit clients in those areas of practice.
General partners spend a part of their time managing the business and other parts of their time serving the partnership’s clients and doing business.
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General Partner’s Liability
Depending on the type of partnership structure, a general partner’s personal liability may be exposed differently.
In a general partnership and a limited partnership, the general partners will have unlimited liability to cover the partnership debt and liability.
On the other hand, a general partner in a limited liability limited partnership will benefit from limited liability as this type of partnership structure offers all partners personal liability protection.
For example, if a judgment is issued against the partnership to compensate a client or a business creditor, all the general partners will be personally liable if the partnership does not have enough assets to cover the liability.
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Partner Misconduct
In general partnerships and limited partnerships, a general partner can potentially be held responsible for the actions and conduct of other partners who may have wrongfully caused damage to others.
The acts and omissions of any partner in the course of the partnership’s regular business operations can result in the general partners being held responsible for the potential loss or liability.
The exception to this is when a partner did not have the authority to act on behalf of the partnership and the third party was aware of that fact.
General Partner vs Limited Partner
What is the difference between a general partner and a limited partner?
One important difference between a general partner and a limited partner is with respect to their personal liability for business debt and losses.
General partners can be personally held liable to compensate business creditors or assume a business loss whereas limited partners have their liability limited to their investment in the partnership.
Another difference is that general partners are typically responsible for the management of the partnership’s business whereas limited partners do not participate in the partnership in this capacity.
A third important difference is with respect to their agency powers.
A general partner has the authority to bind the partnership without the knowledge or permission of the other partners whereas a limited partner does not have this authority.
General partners can legally bind the partnership whereas limited partners have limited powers to do so.
There could also be a difference in taxation regimes applicable to general partners and limited partners.
General partners typically have pass-through taxation meaning that they can report the partnership gains and losses on their personal income tax.
They will also pay self-employment taxes.
However, limited partners do not pay self-employment taxes as they are not considered as active partners in the partnership.
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Takeaways
So there you have it folks!
What is a general partner?
In a nutshell, general partners are two or more people joining their skills, time, and resources to operate a partnership.
General partners typically assume unlimited liability for the partnership’s debts, financial obligations, and liabilities.
The general partner title is usually used in limited partnerships as there are both limited and general partners.
Now that you know what is a general partner along with their roles and responsibilities, good luck with your research!
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