General Partnership
Two or more people own and run a business together. Like a sole proprietorship, there is no liability protection. Each partner is personally on the hook for business debts, including debts run up by the other partner.
Ownership
Two or more individuals (or entities)
Pass-Through Taxation
Yes
State Filing Required
No
Self-Employment Tax
Yes
None. Every general partner is personally liable for all partnership debts, including debts created by other partners. Joint and several liability applies.
Partnership files an information return (Form 1065) but pays no federal income tax itself. Each partner receives a Schedule K-1 showing their share of profit/loss, which they report on their personal return.
Self-Employment Tax
Yes for general partners. They pay self-employment tax on their distributive share of partnership income.
How to Form
No state filing required to create a partnership. A written partnership agreement is strongly recommended (but not legally required) to spell out profit splits, decision-making, and buyout rules.
Ongoing Compliance
File Form 1065 annually, issue Schedule K-1s to each partner, maintain partnership records. Some states require annual partnership registration.
- Easy and inexpensive to form
- Shared responsibility and capital
- Pass-through taxation (no entity-level tax)
- Flexible profit and loss allocation among partners
- Unlimited personal liability for ALL partners
- Each partner is liable for actions of other partners
- Partnership dissolves when a partner leaves or dies unless agreement says otherwise
- Potential for disputes without a clear written agreement
- Self-employment tax on partnership income
Small businesses with co-founders who trust each other completely and have low liability risk. Most partnerships should consider converting to an LLC for liability protection.
- •Form 1065 (Partnership Return)
- •Schedule K-1 (Partner's Share)
- •Schedule E (Form 1040)
- •Schedule SE
See our Tax Forms reference for details on each form.