In a general partnership, all partners share in the business’s profits and, critically, its liabilities. Should the business incur debt or face legal judgments, each partner is held personally liable. This means creditors can pursue individual partners’ personal assets to satisfy the partnership’s obligations. For example, if a partnership defaults on a loan, the lender can seek repayment from any or all partners, regardless of their individual contributions to the business or their role in incurring the debt.
Understanding this joint and several liability is crucial for anyone considering a general partnership structure. It underscores the importance of careful partner selection, diligent financial management, and comprehensive liability insurance. Historically, this shared responsibility fostered trust among partners and provided creditors with a stronger guarantee of repayment. However, it also highlights the significant financial risk each partner assumes. This concept of shared liability differentiates general partnerships from limited liability companies (LLCs) and corporations, where personal liability is generally shielded.
Continue reading “Who's Liable for General Partnership Debts After Failure?”
