What is a General Partnership?
A general partnership is a business owned by two or more people (even a husband and wife), who carry on the business as a partnership. Partnerships have specific attributes, which are defined by Kansas Statutes.
- All partners share equally in the right and responsibility to manage the business.
- Each partner is responsible for all debts and obligations of the business.
- The distribution of profits and losses, allocation of management responsibilities and other issues affecting the partnership are usually defined in a written partnership agreement.
- The filings are optional and not mandatory.
- A general partnership is easy to organize and has few initial costs.
- A general partnership draws financial resources and business abilities from all partners.
- It has quasi-entity status in that it may own assets, contract in the partnership name, may sue and be sued in the partnership name and may file separate bankruptcy.
- Liability is shared by all partners.
- Partners may take business losses as a personal income tax deduction.
- The partnership may register a trademark or a service mark to help prevent confusion resulting from deceptively similar business names.
- Each partner is personally liable for all the obligations of the business, not just his or her share. Thus, if a company truck is involved in an accident, each partner's personal assets may be attached by the court to help compensate the injured party.
- Each partner has the power to act on behalf of the business, which requires that partners be chosen with care.
- The partnership has no continuity of life. If any partner dies or becomes incompetent, such partner’۪s interest is dissociated from the partnership and the partnership may be dissolved and reformed.
- All partners must pay tax on their share of partnership profits, although profits may be retained in the business.
- A general partnership has more opportunity than a sole proprietorship but less than a corporation, to take advantage of certain benefits afforded by the Internal Revenue Code.
For income tax purposes, a General Partnership functions as a conduit and not as a separate taxable entity. No tax is imposed on the Partnership itself (K.S.A. 79-32,129 et. seq.). Those carrying on business as partners are liable for taxes based on their percentage of ownership and must file a Kansas Individual Income Tax Return (Form K-40) (K.S.A. 79-3220). Each individual partner is subject to the same reporting requirements and tax rates as the Sole Proprietor or individual. The Partnership must file a Kansas Partnership or S Corporation Income Tax (Form K-120S) each year to enable the State to determine who should be paying taxes relative to the Partnership.
Unemployment taxes need not be paid on the partners or for services rendered by individuals who are the children under 18 years of age, the spouse or the parents of any partners.
Partnerships are required to apply for a Federal Employer's Identification Number, whether they have employees or not.
- Each partner receives a Schedule K-1 (Form 1120S), which shows proportional profits to be declared on each partner's 1040;
- The Partnership files a return using IRS Form 1065;
- Estimated tax payments may be subject to quarterly tax payments; refer to IRS Publication 505; and
- Partners may be subject to self-employment withholding; refer to IRS Publication 533.
Other Helpful Publications
For more information, refer to IRS Publication 541 on Partnerships.