Question

Can a general partner to a partnership moonlight (i.e. work for another venture or on another project outside of the partnership)? What are the rules he/she would have to utilize in doing so?

Answer 1

What Is a General Partner?

A general partner is one of two or more investors who jointly own a business and assume a day-to-day role in managing it.

A general partner has the authority to act on behalf of the business without the knowledge or permission of the other partners. Unlike a limited or silent partner, the general partner may have unlimited liability for the debts of the business.

Why choose a general partnership?

• Ease of creation. No state filing is required. The partnership is created when the partners begin business activities.
• Low cost of operation. Because general partnerships are not formed by means of a state filing, they are not required to pay a formation filing fee, ongoing state fees or franchise taxes. The partnership must still obtain the business licenses and permits required for operation however.
• Few ongoing requirements. Unlike corporations, general partnerships are not required to hold annual meetings of the owners, issue partnership interest, and keep personal asset separate from business assets. Having a partnership agreement that outlines how the partnership will be managed, the roles of each partner, and what events will cause the partnership to end operations is recommended.

Rules regarding general partnership

Uniform Partnership Act

The Uniform Partnership Act is the formal standard for defining business partnerships. The UPA states that a partnership is any business with joint ownership of its resources by two or more people. A business in which multiple people share returns or profits is also a partnership. Partnerships do not need to have incorporation documents or formal contracts between partners, although many do. This means that any time two people come together to form a business, they are becoming business partners and taking on shared responsibility for the business they form.

Partnership Agreements

A partnership agreement is a formal, legally binding document that business partners sign to outline their rights, responsibilities and financial involvement in the partnership. Business partners can draft and sign any partnership agreement they wish. However, each business partner who signs is bound to the agreement's terms. New partners who join the business later may need to sign the same agreement, or the partners can redraft the partnership agreement

Liability Rules

Without assigning financial liability and stake in a company, business partners are equally liable for, and entitled to, a company's financial dealings. This means that each of a company's partners shares the same tax liability for profits from the business. Likewise, if the business makes a profit, all partners share equally in those profits. Partnership agreements can assign liability to specific partners and outline what percentage of profits certain partners are entitled to. Business partners can only eliminate liability altogether by forming a corporation, which brings added legal and financial protection.

Rules for Business Operations

A partnership agreement can also include rules for how business partners share the duties of managing a business. For example, the agreement can indicate that one partner is responsible for handling financial accounting and management of the company's office, while another is responsible for developing new products and overseeing marketing efforts. Duties not assigned in the partnership agreement become shared obligations. These rules allow business partners to understand not only their own responsibilities but also which areas of the business are under another partner's control.