General Partnership: Formation, Advantages and Disadvantages

Many people want to go into business with a partner. This has many advantages over working alone. You have someone to carry you through struggles, and someone to turn to for decision-making. There’s also the fact though that you have someone who is interfering with the decisions that you would like to make. This can be hard to handle, but can be worth it. In the following we show you what a general partnership is, its advantages, how it is formed, and much more.

Definition and Basics: What does a General Partnership Mean?

The official definition, according to the state of California is “a form of business entity in which two or more co-owners engage in business for profit”. In practice it means two individuals share liability, profits, and losses from real estate investments. Important: this form of doing business is unincorporated, meaning that it is not separate from the people doing the business. It also has, by definition, more than one owner.

• A form of business entity in which two or more co-owners engage in business for profit

Forming a General Partnership: Business Name, Licenses, Agreements, etc.

In forming a general partnership, the first step is to choose a business name for the partnership. This is important, as you need to make sure that the name is not taken by another company or partnership. To do this you search your local district’s registry, the state secretary’s and so it does not infringe on a trademark or service mark the United States Patent and Trademark Office and the Register of Trademarks and Service Marks. Next, you draft and sign a well-written partnership agreement.

Next, back to the secretary of state, where you file a statement of general partnership. Many people skip this, as it is not obligatory, and you can avoid the $70 filing fee and the $15 fee. In the same step, you register the name of the partnership at the local level by obtaining a fictitious business name. Next you must set up a separate bank account for your partnership. You should try to keep your personal finances separate from your business finances. Finally you obtain the local business licenses and specialty real estate licenses (these differ between states).

Process summarized:

1. Choose a Name
2. Create a Partnership Agreement
3. File Statement of General Partnership and Register Name
4. Open a Partnership Account
5. Obtain Permits and Licenses

Documents:

• Partnership Agreement
• Statement of General Partnership

Advantages: Filing Fees, Stress and Flexibility

The first advantage is not the most significant, but perhaps important for partnershiips with limited time and finances (we do not recommend this). A general partnership is not as legally binding as other forms of business entities, and therefore is not necessary to be filed at the state level. Therefore you can skip the filing fee and hassle with the secretary of state. It is also in general a less stressful form of business, as there is less bureaucracy and it is less legally protected. Lastly, the biggest advantage of a general partnership is that it is very easy to convert to an LLC. This makes it a great stepping stone for those not ready for the total commitment of an LLC.

• No filing fee
• Less stressful
• Flexible to convert

Disadvantages: Structure, Liability and Disagreements

The main reason most people form a business is to avoid liability. This is unfortunately not the case for general partnerships which are not subject to liability protection, as they are not entities separate from their owners. An additional problem comes from the fact that general partnerships are often formed between two individuals who already know each other. Even when this is not the case, a common problem, as there are only two people in the partnership, is that owners disagree. This can lead to conflict and far-reaching issues. The lack of structure is another and the final disadvantage of general partnerships

• No liability protection
• Owners can disagree
• Lack of Structure

Real Estate General Partnership: Advice, Tips for Real Estate Partnerships

Different from other types of ownerships like C corporations or S corporations, a general partnership is considered the original partnership, and is also the least complicated. There are still a few details to keep in mind. Including how to structure a real estate partnership (whether limited or general), and the utmost importance of a partnership agreement. Lastly, we also answer the common question, if general partners are a necessary part of a partnership.

1. Structuring a Real Estate Partnership
2. Partnership Agreement
3. Does every partnership need a general partner?

Structuring a Real Estate Partnership

The structure of a real estate partnership can be a complicated thing. It is important to take your time with planning this, and making every step of it as perfect as possible. To avoid mistakes, get a primer on how to structure your partnership with the video below.

Partnership Agreement – Most Important Part of a General Partnership

When investors in a general partenrship buy a property, each general partner has an equal right to participate in the management and control of it. From a practical perspective, this means that determining how disagreements that arise in the ordinary course of business will be handled is of paramount importance. The partnership is free to designate a different method of decision-making and provide for it in writing either in the partnership agreement and/or an amendment thereto. In the partnership you will detail how decisions are made, how votes are made, and if you need e.g. a majority or unanimous vote.

The partnership agreement is make or break!

Does Every Partnership Need a Partner?

Yes. Every partnership, including limited partnerships, and limited liability partnerships (not to be confused with limited liability company), need at least one general partner. This is the person that makes day-to-day decisions, and takes the brunt of liability. They also make all legally binding decisions, as it is them who are liable for any legal consequences.

• Yes, every partnership needs at least one general partner who makes day-to-day decisions

Taxes: Pass-Through Structure

There are a few benefits to taxes in tthe world of general partnerships. Firstly, general partnerships, unlike corporations, do not pay income taxes. We go in-depth on the details you need to know, below.

1. Are Partnerships Tax Exempt?
2. Do all Partners pay the Same Amount of Taxes?

Are Partnerships Tax Exempt? Tax Structure of General Partnerships

Yes. General partnerships are tax exempt. The business itself does not pay any income taxes. Rather, the general partners pay income taxes. In other words, profits, losses, etc. all pass through to the partners directly.

• No, all income and losses pass through directly to partners and are taxed as their incoome tax

Distribution – Do all Partners Pay the Same Amount of Taxes?

This can be decided by partners. Otherwise, the IRS taxes every partner equally. This can be advantageous, e.g. if you are an existing partner and a new partner joins, in which case the amount of tax reduces. If you are made a partner though, then you become owner of the partnership’s assets, and also liable for taxes.

• Partners decide whether everyone pays the same amount

General Partnership – The Original Partnership

The general partnership is the classic, the original type of partnership. It is attractive often mostly for beginners or those who are not yet certain that they will enter an LLC or the direction their business will take. It has many advantages though, and is a good decision for many who choose it.

Comparison: What is the Difference between a General Partnership and Limited Partnership

The difference between a general partnership and a limited partnership is that a general partnership consists only of general partners, all of whom carry liability. Limited partnership has additional partners who are not liable (so-called limited partners). General partnerships and limited partnerships are often misconstrued, due to the important difference between a partner and partnership. A limited partnership also has general partners.

• Limited partnerships are general partnerships with additional partners who do not carry liability (limited partners)
• General partnerships consist only of general partners

See Limited Partnerships – Real Estate

Creditworthiness: Who checks what here?

In modern business dealings, it is impossible to imagine business without the examination of creditworthiness – i.e. credit rating. The reliability in payment matters is already checked with each purchase with a credit card. Installment purchases in the electrical goods market, for example, only work for the customer if the creditworthiness is checked immediately. The classic institution for credit information of any kind is the Schufa. Since 1927, this credit agency, which is organized privately as a public limited company, has been early to assess the reliability of people in terms of their ability and dependability to pay.

Before someone else checks my own creditworthiness, I can always do it myself. Here too, the classic way is to enquire at the Schufa. The first (usually postal) inquiry with Schufa is free of charge. For each further one the Schufa charges a fee of 30,- €. The answer is then also sent by post. For both landlords and tenants, Schufa offers special service packages with which credit information is formally correct.

Of course, there are now also numerous ways to determine your creditworthiness online. The advantage: it is faster and I can look at my own data at any time. If an error is noted there, it can be corrected very quickly. No matter whether Schufa or one of the online providers: Without the use of an ID card, no one can access their credit ratings.

Credits: Current and long-term liabilities

In the first step, for example, information on current or terminated loans, credit cards or credit periods is recorded in the credit check.

Accounts: Bank, shares Depot & Co.

Furthermore, the auditors obtain information from the buyer about his own bank or current accounts, as well as overdraft facilities, mail order accounts or account terminations.

Contracts: Telephone, leasing, payment by installments.

Here, for example, information on the conclusion of contracts, contract cancellations and individual contracts is collected.

Debt: Debtor directories (like Schufa)

This step checks whether entries have already been made in debtor directories. However, such companies also store information on dunning notices, insolvency applications, foreclosures and also on affidavits.

Check Schufa and evaluate data correctly

By obtaining information from a credit investigation agency (Schufa) you create a foundation. But before you decide on a tenant, you should evaluate the data correctly, for which you need a lot of expertise and experience in “reading” the score values. If you make the wrong decision on this point, this circumstance can lead to high follow-up costs and much trouble.

In real estate transactions – and also in the case of letting – the commissioning of a real estate agent naturally also includes checking the creditworthiness of interested parties. This gives you the security to rent to a really solvent applicant. You yourself have no work with the inquiry at the Schufa, since this service belongs to the achievements of the assigned real estate agent.

Likewise, you can be sure that you will only receive recommendations for those applicants who are eligible based on their income and creditworthiness. The evaluation of creditworthiness is carried out according to your criteria as owner. Do you have a very specific idea of the income, or rather the income level of your new tenant? If so, this important basis for you will be taken into account in the search for tenants and included in the screening of potential applicants. The pre-selection sent to you will save you a lot of time and nerves. Your gain is a maximum of security that you have found the right tenant for your property.

Letting with brokers? All advantages at a glance

Whoever thinks of renting out as a real estate owner does not always have an estate agent in mind at first. After all, the use of an estate agent costs money: Since June 1, 2015, the buyer principle has been in force in Germany for the procurement of living space: If you appoint an estate agent, you pay him. If the landlord appoints a broker to act as an agent, he must also pay him. If the broker finds a prospective tenant, the future tenant does not have to pay the broker anything.

What the broker costs when renting out

The amount of the commission is in principle freely negotiable for landlords. Usually it is between 1.5 and 2 net cold rents plus VAT. For tenants, the amount of commission is clearly limited by law: It may not exceed two net cold rents plus value added tax.

But: A real estate agent…

• Saves time and effort
  A good real estate agent takes over the time-consuming search for tenants on site.
• Offers more security!
  A good real estate agent checks the creditworthiness of potential tenants.
• Top rental agreement!
  A good real estate agent ensures a good tenancy agreement.
• Brings tax advantages!

Brokerage costs are tax deductible for the landlord.

The change of name – requirements, procedure and the children

In the event of a divorce, the married name is initially continued unchanged by both spouses. However, if desired, a divorce can also be used as an opportunity to seek a name change. This is particularly often requested in the case of contentious divorces. There are various ways to change the surname. The maiden name can be adopted again, a double name can be created from the married name and maiden name or the married name from the first marriage can be adopted again. What are the requirements and procedures, what must be considered and what about the name of the common children?

• Tip. Our guide for house and apartment: Selling real estate after divorce.

The most important at a glance:

• A change of name can be made after a divorce only if this is legally binding, i.e. if no more legal remedies against the divorce decree are possible.
• A change of name can only be made at a registry office that keeps the family register. Certain documents are necessary for this, such as the divorce decree with legal effect and an identity card or passport.
• Children can only change their surname after a divorce under certain circumstances
• The registry office charges a certification and authentication fee of 25 euros for a name change. In addition, there are the costs for the change of important documents, such as the identity card

The prerequisites – legally binding divorce

In order for a surname change to take place after a divorce, the marriage must have been legally divorced. A final divorce is when there is no longer any right of appeal against the divorce decree. To ensure this, either both spouses must waive appeals at the divorce hearing or neither spouse must appeal the divorce decree through an attorney within one month. On the divorce decree, an affixed notation of res judicata is used by the court to document that the divorce is final. In order to obtain this, the divorce decree served after the divorce must be sent to the court again with the request for the note of res judicata. Only then is the document to be considered a legally valid divorce and usable for the name change.

• A change of name can only be made after a divorce, if this is legally binding.
• A divorce is only final when there is no longer any possibility of appeal against the divorce decree.

The procedure – change of name in the registry office

The change of name can be carried out after the divorce at the respective competent registry office, as the family register is kept here. Some documents are required for this. On the one hand, the divorce decree with the final decree, an identity card or passport and, if necessary, a certified copy of the marriage register if the person concerned has moved after the marriage. If all these documents are available, the name change can be carried out directly on site. The registry office charges an amount of approx. 25 euros for the certification and authentication fee. In addition, there are costs for issuing or changing important documents, such as the identity card, passport, credit cards or driving licence.

• A change of name can only be made at a registry office which keeps the family register.
• Certain documents are required, such as the divorce decree with final decree and an identity card or passport.

The children – change of name only under certain conditions

The divorce of a marriage initially has no influence on the name of joint children. However, if the parent with whom the child lives after the divorce remarries and has further children from the second marriage, it can happen that the child from the first marriage has a different name from the rest of the family and feels excluded. In such a case, the child from the first marriage can, under certain conditions, adopt the name that the family in the second marriage uses as their married name. The child must be underage and unmarried and live with the parent who wishes to change the name. In addition, the parent must have sole custody, otherwise the other parent must agree to the name change. If the child bears the name of the other parent, he or she must also consent to a name change. If the child concerned is older than five years, he or she must also agree to the name change. If these requirements are met, there is nothing to prevent the child from changing its name.

• Children can change the surname after the divorce of parents
• However, a change of name of the children is only possible under certain conditions

Divorce – prerequisite, separation year, name change

The most important questions on the subject of name change after divorce

The topic of name changes often raises some questions. Is a name change even necessary, which name would make the most sense and is a name change even worth the effort? To make it easier for you to decide whether a name change is right for you, we answer the most important questions about name changes after divorce for you!

How much does the name change cost after divorce?

For the name change at the registry office, there are costs for the certification and authentication fee of about 25 euros. In addition, there are costs for the issue or change of documents, such as the identity card, passport or driver’s license.

How to change your name?

The name can be changed after a divorce at the registry office that keeps the family register. However, if the family has moved after the wedding, this is also possible at the registry office of the new place of residence, which sends the documents to the original registry office.

Can the children take the mother’s name?

If the joint children live with the mother after the divorce and the mother remarries, the children from the first marriage may take the married name of the mother’s second marriage.

Can I take back my birth name after the divorce?

Yes, there are several ways to change your last name after divorce. One of them is to take the birth name again or to choose a double name from the married name and the birth name.

Can children have double names?

Children cannot adopt a double name after a divorce just because one of the parents decides to adopt a double name. Changing the name of the children is only possible under certain conditions.

What is the married name?

A married name is a surname determined by both spouses and borne by all members of the family. A family name does not have to be determined at the time of marriage. The spouses can keep the names used at the time of the marriage even after the marriage.

Divorce: guide, help and tips

Divorce is complex, it’s true. But you are not alone! Many let themselves separate and in fact, a large part always finds a good solution. Only a small part ends in a quarrel. So that you can prepare well, you will find here our small guides and tips on divorce, family, money and real estate.

• Divorce: Guide

Tip 1 – Create a plan for real estate financing

Real estate is in short supply and has high prices, especially in this day and age. There are many interested parties who could become competitors for them. Therefore, it is always to be well prepared and keep an eye on their finances. To ensure this and have a chance in finding their dream property, they should consider some points. First of all, they should use a budget calculator and with the help of this calculate their monthly expenses, so they can estimate how much they have available for the real estate loan. Then, they should use a budget calculator to calculate what purchase price you can afford, taking into account their equity. Once these two points are clarified, they should obtain a non-binding financing request from various banks to see if they can get a real estate loan and how much it would be.

Through these steps, you are well prepared, know whether you would receive a bank loan and which properties would be financially suitable for them at all. Now you can start looking for real estate. The agent or seller, they tell quietly about the preparations, because this underlines how serious it is with the property search and they may be preferred to other buyers.

Tip 2 – be aware of the requirements for your new home

Of course, it is extremely important to know what they can afford financially, but they should also be clear about what requirements they have for the property. You should ask yourself questions like: ‘Where do I want to live?’ In the city or in the country? ‘What needs to be nearby?’ Schools, supermarkets, rail links, …. ‘How many rooms do we need?’ ‘Do we want a big garden or a small one?’. ‘Would we rather build?’. ‘Do we want to renovate or move in ready to move in?’. If you have answered these questions, you can narrow down the property search enormously and save valuable time. You should be sure about a house, because you are buying it and want to live there longer than three or four years. You should also think about what your life will be like in ten or twenty years’ time and whether the demands on the house might change then.

https://www.instagram.com/p/BluxavnFrk9/?tagged=housegoals

Tip 3 – search and find your dream property

Now they already know how much budget they have available and what requirements their new home should meet. Now it’s time to start looking for real estate. It is always advisable to search in as many directions as possible and to have a lot of choice. Therefore, search in various real estate portals, they commission brokers, they ask their friends and acquaintances and they just go for a walk in their desired place of residence, often find so houses that are for sale. Do not rush and do not decide thoughtlessly. Several house inspections may also help you to expand your requirements for a house.

Tip 4 – Investigate the location of the house

Found a property that fits your budget and vision? Great! However, even if it looks great at first glance, you should not decide too quickly. Take a good look at the location of the property first. Check that you can find everything you need in the area. This could include bus stops, supermarkets, schools but also the hairdresser for example. Then they should visit the house at different times of the day and see if there are any unpleasant smells produced by, for example, a sewage treatment plant or the farmer next door, are there any disturbing noises that could be annoying in the long run? Such visits can also be useful to observe, for example, when the sun shines where into the house or garden.

https://www.instagram.com/p/Bluvt77lL09/?tagged=housegoals

Tip 5 – Check the house from top to bottom

Of course, you don’t want to invest your money in something that has, for example, broken pipes, a damp cellar or possibly water damage. So before they buy a house, they should put it through its paces. To do this, they can quietly consult an expert who takes for them the house under the microscope. They should check things like: Energy efficiency, moisture, mold, sponge, pollutants or asbestos. But also things like insect infestation by termites or the like they should prevent. What you can look for yourself during an inspection, are the conditions of roof, windows and wood, but also the smell, can indicate such as mold infestation.

Tip 6 – get all the important documents about the house

The location of the house is perfect and serious damage can also not be determined. You are getting closer and closer to your dream of owning your own home! Next, you should ask the seller or the agent to hand over all the important documents for the house. These not only help to clarify open questions, but are also partly needed to clarify financing issues with the bank. Among the important documents are: Floor plans, site plans and possibly construction documents, in the case of leaseholds the lease agreement, the extract from the land register, the energy certificate, if necessary the extract from the building encumbrance register and in the case of common property, such as terraced houses, for example, the declaration of division, the certificate of seclusion, the community ordinance, the partition plan and the minutes of the last owners’ meeting.

https://www.instagram.com/p/Bluor5iH1gV/?tagged=housegoals

Tip 7 – negotiate the best purchase price and lock in the financing

Once all the points have been clarified and you are sure that you want to buy the property, all that remains is to finalise the purchase price. In normal cases, there is always some room for negotiation on the asking price. This is strongly dependent on the location of the property, because where there are many potential buyers other than you, the negotiating leeway is rather small, but if you are the only interested party, they should quietly poker something. Simply send the exposé of the property to your financial advisor. This can calculate the market value and the mortgage lending value from the point of view of the bank for you and they can estimate the offer price better. In addition, you can find out about prices per square metre in the region or do an online search for comparable properties.
It is also important that you can only buy the house when you have the financing commitment of the bank in your hands, because only then can a notary appointment be arranged. You should therefore have all the documents together as early as possible so as not to delay the process unnecessarily.

Tip 8 – Familiarise yourself with the bureaucratic procedures of buying a house

When buying a house, they face a bureaucratic act, because there are many things to be considered. So that they are not completely overwhelmed, they should familiarize themselves in advance with the most important terms and procedures. This includes, for example, the purchase contract, the entry in the land register and the payment procedure. If you want to learn more about the topic, take a look at our big guide to buying a house!

https://www.instagram.com/p/BluhvAhnWHD/?tagged=housegoals

Tip 9 – Do not underestimate the purchase contract

A purchase contract is a very extensive contract. You should not save time at this point, but read the contract of sale completely and ask for any ambiguities! The contract of sale should be available at least two weeks before the notary appointment, so that you have enough time to check it. Important points, which should stand absolutely in a sales contract are data to installations, which are sold with, as for example the fitted kitchen, the fire-place or awnings. But also the assurance of the seller that he is not aware of any contaminated sites, such as pollutants, which are not mentioned in the purchase contract. The exact purchase price should also be stated in the contract.

Tip 10 – the contractual handover

In the notary contract is regulated when the handover takes place and which components of the house also pass to the buyer. So you should definitely check again before the appointment, which agreements were made, and pay attention to the compliance with these during the handover. The following documents should also be handed over to you at this date at the latest: all keys incl. cellar and garage keys etc., the documents for the residential building insurance, all documents for the building services such as maintenance contracts, operating manuals etc., but also the documents for the appliances that you have taken over.

If this appointment went smoothly, you are now the proud owner of your dream property and can finally tackle the move!

https://www.instagram.com/p/BlVgFMpjgZ_/?tagged=housekeys