General partnerships examples: from concept to success stories

Introduction

A general partnership is a business structure in which two or more co-owners operate a company together and share profits. 

General partnerships are common for small businesses and professional service firms. Understanding how general partnerships function through real-world examples provides critical insight into their role in various business contexts.

Examining high-profile general partnerships sheds light on key considerations like:

• How the partnership structure enables jointly-owned firms to leverage combined resources and expertise.
• How general partnerships distribute liability and decision-making powers.
• How partnerships handle financial aspects like profit/loss distributions and taxes.
• How partnerships establish roles and governance through partnership agreements.

By exploring these dynamics through established partnerships, it becomes clearer when and 

why the general partnership model makes sense as a business structure option and what factors partners should weigh. 

Grasping partnerships in practice is essential for anyone potentially launching or joining a jointly-owned enterprise.

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Examples and industries of general partnerships

Professional services

When it comes to professional services, general partnerships are extremely common. This allows professionals in the same field to jointly own and operate a business together.

• Law firms: One of the most prevalent examples of a general partnership is a law firm. Attorneys come together to form partnerships and collaborate on providing legal services to clients. They share the costs, profits, liabilities, and decision-making involved in running the firm.
• Medical practices: Groups of doctors often form general partnerships to operate a medical practice together. As partners, the doctors can share expenses, profits, losses, and liabilities. This allows them to provide healthcare services as an organized team.
• Accounting firms: Partnerships enable accountants to jointly offer accounting services to clients under one business name. The accountant partners agree to share profits and losses from the accounting firm.
• Architectural firms: Architects commonly partner together in general partnerships. As partners, the architects can work jointly on architectural projects while sharing credit and responsibility.

Real estate

General partnerships are extremely widespread in the real estate industry. They allow real estate professionals to work together in buying, selling, and developing properties.

• Real estate brokers often form general partnerships to jointly operate a brokerage. The partners collaborate on listing, marketing, and selling properties on behalf of clients. They share commissions and split profits from the brokerage partnership.
• Investors may establish a general partnership to jointly invest in real estate. The investor partners pool their resources to buy rental properties or flip houses, sharing any profits or losses. This allows them to invest in more properties than they could individually.
• Developers can partner together in a general partnership to take on development projects. They work together to handle tasks like purchasing land, designing buildings, obtaining financing, and constructing properties.

By partnering together in a general partnership, real estate professionals can take on bigger, more complex real estate deals and share the risks involved. The flexibility of a general partnership makes it suitable for jointly operating in the various facets of real estate.

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Retail

In the retail industry, general partnerships allow owners to jointly establish and operate stores. Partners can share the costs and responsibilities of running a retail business while also sharing any profits.

• A general partnership enables multiple owners to jointly own and manage a retail store. The partners would share rental costs, inventory purchases, employee wages, and other overhead expenses. They would also split any profits generated by the retail store.
• Restaurateurs often enter general partnerships to open up a restaurant together. Partners in a restaurant can share various duties from managing staff to selecting menu items. They jointly cover operating costs and collectively earn profits.
• Boutiques are retail stores that commonly operate as general partnerships. For example, two fashion designers could partner to open a boutique, sharing design duties, inventory costs, retail space rental payments, and sales revenues.

By entering a retail general partnership, business partners can leverage shared resources and expertise to successfully run stores, restaurants, boutiques, and various other retail establishments.

Advantages of forming a general partnership

Easy to establish

One major advantage of a general partnership is that it is easy and quick to establish. Essentially, a general partnership can be formed just by having a partnership agreement between the partners.

• Just a partnership agreement needed, offering a swift startup. Because general partnerships do not require formal registration, the key step to forming one is crafting a partnership agreement. This establishes the partners’ rights and responsibilities.
• No separate business entity creation necessary. While other business structures like LLCs and corporations need filing of formal documents to create the entity, general partnerships can skip this step.
• Setup costs are minimal. Without incorporation documents to file, there are minimal setup costs when forming a general partnership. This enables partners to avoid expenses like incorporation fees and attorney costs for establishing a business entity.
• Quickly commence business operations. Since the partnership can begin operating after just a partnership agreement, general partnerships allow partners to swiftly start conducting business without delays.

The ease of establishment makes general partnerships an appealing option for those wanting to avoid bureaucratic red tape and quickly startup a jointly owned business.

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Shared resources

A major advantage of a general partnership is the ability to pool resources with your partners. By bringing together finances, skills, and expertise, the partnership can benefit from shared capabilities leading to more diversified business operations.

• Pool finances to increase capabilities. Partners can contribute funds to provide operating capital for pursuing larger projects and ambitions than feasible individually.
• Combine diverse skills and expertise. Partners often have complementary skill sets and specialties that, when shared, offer a broader range of knowledge for the partnership.
• Share access to professional networks. Partners bring their unique personal and professional connections, expanding the partnership’s reach.
• Jointly utilize assets and equipment. The partnership allows property, facilities, and equipment owned by partners to be used by the business.
• Diversify business operations and offerings. With an expanded talent pool and resources, general partnerships can readily diversify into new endeavors and offerings.

Teaming up with partners gives each person a stake in a larger, more capable shared organization. Leveraging combined resources is a key benefit of a general partnership structure.

Tax benefits

General partnerships can provide advantageous tax treatment that offers partners potential tax savings.

• Pass profits/losses to partners’ returns. In a general partnership, profits and losses pass through to the partners to be reported on their personal tax returns.
• Avoid double taxation. Many business structures like corporations face double taxation – once at the corporate level and again when profits are distributed. General partnerships avoid this.
• Create deductions and credits. By passing losses and business expenses through to partners, general partnerships can help partners reduce taxable income and create tax deductions/credits.
• Qualify for tax incentives. Depending on the type of business, partners may qualify for tax incentives related to renewable energy, historical preservation, research activities, and other fields.
• Splitting income can lower total taxes. Partners can strategically allocate partnership profits and losses to lower collective tax liability.

The pass-through taxation structure of a general partnership can unlock potential tax savings for partners. Proper tax planning is key to maximizing any benefits.

Flexibility

A key advantage of general partnerships is the flexibility and versatility they provide through joint decision-making. This allows adaptable business strategies.

• Partners set agreed-upon terms. The partnership agreement establishes each partner’s role, powers, and capital contribution. This provides a framework for joint decisions.
• Share responsibility for business direction. Partners collectively determine strategies rather than a top-down management structure.
• Adapt plans through collaborative decisions. Partners can readily discuss and modify plans to capitalize on new opportunities in a nimble fashion.
• Dynamic resource allocation. The partnership can shift resources and reassign partner responsibilities as conditions change.
• No limits on ownership structure. General partnerships accommodate any number and mix of partners, enabling shifting ownership.

By collaborating on major decisions, general partnership partners enjoy great freedom in structuring and operating their jointly-owned business as they see fit. This provides the agility to adapt for success.

Real-life instances of successful general partnerships

McKinsey & Company

McKinsey & Company is a prominent example of a successful general partnership operating for decades. This multinational management consulting firm was started as a partnership in 1926 by James McKinsey and Andrew Thomas Kearney.

• Founded as a general partnership in Chicago by James McKinsey and Andrew Kearney in 1926. McKinsey was an accounting professor and Kearney was one of his students.
• The firm opened a second office in New York in 1935, establishing the partnership structure that remains today. Offices across the world would follow.
• Currently has over 30,000 employees with partners owning the firm and sharing profits. The firm maintains the partnership structure that formed its foundation.
• McKinsey provides advisory services spanning strategy, operations, technology, and organization. It serves many leading companies, governments, and institutions.
• Ranked as the top management consulting firm by revenue. The 2021 revenues exceeded $15 billion.

The continued success and growth of McKinsey & Company demonstrates how a general partnership model can enable a professional services firm to thrive long-term.

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Mayer Brown LLP

Mayer Brown is a leading global law firm that operates offices across the Americas, Asia, and Europe as a general partnership.

• Founded as a general partnership in Chicago in 1881 by Adolf Kraus and Levy Mayer. Originally named Kraus, Mayer & Brackett.
• Currently has over 1,500 lawyers. It is one of the largest law firms in the world.
• Practices across key areas like litigation, corporate & securities, banking & finance, real estate, and more. Represents clients from around the world.
• Operates as a limited liability partnership (LLP). Partners jointly own the firm and share profits while having some limited liability protections.
• Ranked as one of the highest grossing law firms. The American Lawyer ranked it #7 based on 2021 revenues of over $1.8 billion.

Mayer Brown’s longstanding success as a global law partnership demonstrates the viability of a general partnership structure for leading professional services firms. The use of a limited liability partnership provides partners the benefits of joint ownership with some liability protections.

BDO USA LLP

BDO USA LLP is one of the largest accounting firms in the U.S., demonstrating the effectiveness of a partnership model.

• Founded in 1910 as Bachrach, Sanderbeck & Company in Chicago. Initially a small partnership.
• Merged and expanded over the years, becoming BDO Seidman LLP in the 1970s. Renamed BDO USA LLP in 2010.
• Currently has over 10,000 partners and staff operating in 60+ offices nationwide. Offers assurance, tax, and advisory services.
• Ranked as the 5th largest U.S. accounting firm by revenue. BDO USA earned annual revenues of $1.8 billion in 2021.
• Functions as a limited liability partnership (LLP). Partners jointly own the firm and share profits while having liability protections.

For over a century, BDO USA LLP has continually grown and succeeded as a national accounting partnership. Its LLP structure enables partners to collaboratively own a prominent firm with limited financial exposure.

Skidmore, Owings & Merrill LLP

Skidmore, Owings & Merrill (SOM) is a leading architecture and engineering firm that successfully operates worldwide as a partnership.

• Founded in 1936 as a partnership in Chicago by Louis Skidmore and Nathaniel Owings.
• Notable for designing some of the world’s tallest buildings including the Burj Khalifa, Willis Tower, and One World Trade Center.
• Currently has over 1,500 partners and professionals across nearly 30 offices globally.
• Provides architecture, interior design, engineering, and urban planning services.
• Manages high-profile projects like the new Obama Presidential Center and the Warner Bros. Studios expansion.
• Functions as a limited liability partnership (LLP), offering partners liability protections.

SOM exemplifies a prominent design/engineering partnership that has leveraged the collaborative approach of joint ownership into crafting iconic buildings across the globe. Its LLP structure enables it to minimize liability risk.

Considerations for forming a general partnership

Partnership agreement

Crafting a strong partnership agreement is crucial for defining partner expectations and avoiding misunderstandings. Key elements to address include:

• Capital contributions from each partner and ownership percentages based on those contributions. This establishes each partner’s financial stake.
• An outline of profit/loss distributions based on set percentages or ratios. This determines how partners share in financial upside/downside.
• Clearly delineated roles, responsibilities, and decision-making powers for each partner. This enables smooth daily operations.
• Schedules/processes for additional capital contributions if needed. This provides a framework if more funds are required.
• Buyout terms if a partner departs the partnership or passes away. This provides continuity procedures.
• Dispute resolution procedures. This enables orderly resolution of any partner disagreements.

Setting precise partnership terms upfront aligns partners on how their joint endeavor will function and their individual commitments. This provides a roadmap for productively working together.

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Liability

General partnerships entail substantial financial liability risk that partners must carefully weigh. Key aspects include:

• Joint and several liability. All partners are personally and equally liable for the actions of the partnership and its debts/liabilities. This is joint and several liability.
• Exposes personal assets. Creditors can pursue partners’ personal assets like houses, cars, and bank accounts to satisfy partnership debts. Partners’ exposure is not limited to their investment.
• Shared liability for co-partners’ actions. Partners can be liable for acts and omissions committed by any partner in the ordinary course of partnership business.
• Liability issues don’t dissolve with the partnership. After dissolving, partners retain liability for prior partnership activities and obligations.
• Reducing liability requires planning. Partners should explore options like liability insurance coverage, limited liability partnerships, and limited partnerships.

With unlimited personal financial exposure, assessing and addressing liability is imperative for those considering a general partnership. This joint liability risk makes many partners opt for structures like limited partnerships or LLCs. Careful planning is essential.

Taxes

Tax treatment is an important consideration for general partnerships. Key aspects include:

• Partners pay taxes on their share of profits. General partnerships pass all profits/losses through to partners to report on their personal tax returns.
• Allows splitting business income. Partners can allocate partnership income in a way that minimizes collective tax liability.
• Self-employment tax applies to most partners. As active participants, most partners owe 15.3% self-employment tax on their share of profits.
• Payroll taxes still required for employees. While partners avoid corporate taxes, the partnership must still withhold and remit payroll taxes for any employees.
• Schedule K-1 tracks partner allocations. Partnership income/loss is documented for partners annually on IRS Schedule K-1 for tax reporting.
• Other potential taxes. Depending on locality and industry, other taxes may apply like sales tax or excise taxes.

Understanding the tax implications is key for general partnership partners to accurately estimate their tax liability and ensure proper compliance. Consulting a tax advisor is highly recommended.

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State registration

While establishing a general partnership is straightforward, partners should still understand their state-specific registration requirements to ensure full compliance.

• No formal business entity filing is required in most states. General partnerships are not distinct legal entities.
• However, many states require initial registration. This involves submitting basic partnership details for the public record.
• Registration often includes partnership name, partners’ names and addresses, and general business activities. This provides public transparency.
• Rules vary significantly by state. Some require annual renewals and impose fees while others simply call for one-time initial registration.
• Additional licensing/permits may be needed. Depending on the industry and location, specific business licenses and permits may be necessary to operate legally.

Checking a state’s precise registration and licensing rules can help streamline launching a new general partnership. While informal, following proper protocol brings peace of mind and avoids potential penalties.

Conclusion

General partnerships are versatile business structures utilized across industries, from professional services to construction. 

Their benefits, as illustrated through real-world examples like McKinsey and Mayer Brown, highlight the potential for partners to jointly own prominent firms by pooling resources. 

However, these advantages come with serious considerations like unlimited liability that make careful planning imperative before establishing a partnership. 

Overall, grasping how general partnerships operate in practice provides critical insight for those exploring joint business ventures. 

While partnerships can allow partners to accomplish more together than individually, their complex dynamics emphasize the need for partners to realistically weigh benefits against risks through a legal, financial, and operational lens before moving forward with this challenging but potentially rewarding structure.

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