A general partnership is essentially the same as a sole proprietorship but with two or more people. You enter a business relationship with other people with the objective to make profits. How you split the income and responsibilities is up to what partnership agreement you come up with amongst each other, but if a partner gets the business in trouble, all the owners will be liable.
Advantages of a General Partnership:
- Low startup cost: Just as sole proprietorships, it is quite simple to register and get started.
- Greater freedom from regulation: Again, just the same as with sole proprietorships. Do note that it is highly recommended to create a partnership agreement, but this is not a regulation or a legal requirement that is enforced.
- Additional sources of investment capital: Since you have partners joining in with you, you can pull resources together and muster more capital than if you were by yourself.
- Possible tax advantages for lower incomes: It will be beneficial if you are making a loss or a moderate amount of money because you are taxed under personal income.
- Broader management base: Again, in general partnerships you are not in it by yourself and can pull from different skill sets and points of view to run your business.
Disadvantages of a Sole Proprietorship:
- Unlimited liability: Owners are responsible for all debts and liabilities.
- Divided authority: The flip side of having different skill sets and points of view is that you lose the ability to enforce your full authority, which can be difficult in certain situations.
- Difficulty in raising additional capital: While you can pull the partners’ resources together, you can’t issue shares or sell off stakes in the company, although you can bring in new partners.
- Difficulty in finding suitable partners: Running a business is hard work and can create conflict between people, so it may not be easy to find people who can make great business partners. Getting along some someone in normal circumstances does not mean things will be smooth in running a business.
- Extra legal risks from partners: Since partners all liable for all of the business’ debts and obligations, you can find yourself being responsible for the actions and decisions of another partner(s). You could end up wrapped up in situations you never agreed to or even had any knowledge of.
- Lack of continuity: General partnerships do not continue past the life of the partners.
- No name protection: The BC registry provides no name protection for general partnerships, so the only option is trademarking.
Jamie will not be starting a general partnership since it requires two or more people. However it will always be an option for future projects of for the whole business itself if a partner comes onboard.