General Partnerships

Virtual Legal ServicesAt minimum, every entrepreneur operating in South Carolina as a partner in a partnership should determine whether: (1) the most beneficial business form (most commonly a sole proprietorship, partnership, corporation, or limited liability company) is being used for the business, (2) legal requirements for that type of entity are being complied with, and (3) the operating procedures of the business risk causing the partner or partnership to needlessly incur liability.

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Is your business a general partnership  

Does the partnership have a properly drafted partnership agreement?  

If you become deceased unexpectedly and have partners, can you be legally certain that they will pay your family a fair price for your part of the business?


Is your business a general partnership? back to top

A general partnership is the most maintenance free way for two or more parties to operate a business and has the least initial start-up expense. General partnerships are formed when two or more parties undertake an activity for the purpose of making a profit, regardless of whether any written agreement has been made or whether the parties understand that they are in a legal partnership. But this ease of formation and use often comes with a heavy price: unlimited personal liability of the general partners for lawsuits filed against the partnership many of which you might otherwise personally avoid if you the business was a limited liability company or corporation. Moreover, because general partners are also agents for each other within the scope of their partnership, partners are also “jointly and severally” liable for each other. This means that each general partner is fully liable for the actions of other general partners in carrying out the business and for the financial obligations of the partnership.

Therefore, you may want to consider operating your business as a limited liability entity, such as a limited liability company (LLC) or a statutory close corporation. Limited liability companies and statutory close corporations offer personal asset protection to business owners in certain instances, but can have, or be easily structured to have, a flexible management style similar to a partnership. While individuals are always personally liability for their own acts of negligence and omissions, those who own and operate a limited liability company or corporation are generally not personally liability for the acts of negligence or omissions of their employees and agents, nor are they personally liable for the debts or contractual obligations of the limited liability company or corporation, unless they specifically personally guaranty such debts or obligation. Other exceptions to this limited liability may also apply.

Should you wish to benefit from limited liability protection, you will want to know that partnerships may be converted to a limited liability company (LLC) and be treated under the law as the same business that originally began as a partnership.

Have you determined whether you are required to obtain a business license or licenses, retail sales license, or home occupancy zoning permit?

Depending on the city, township, or county in which your place of business is located or in which you physically carry out any of your business activities, you may be subject to business licensing requirements. You will want to check with appropriate city, township, and county governments to confirm whether your business activities in any city, town, or county are subject to business licensing requirements.

Businesses selling goods and certain types of services are also required to collect retail sales taxes if such goods or services are being sold to the end user (rather than to a reseller or wholesaler). Retail sales licenses are obtained annually through the South Carolina Department of Revenue and are generally required for each retail location.

If you operate a business in your home, you may also be subject to certain zoning ordinances which require you to obtain a permit to operate your business from your home and which place certain restrictions on your business activities. Contact the appropriate county, township, and city zoning offices for more information.  

Does the partnership have a properly drafted partnership agreement? back to top

Most partnerships require trust between the partners. However, the trials and tribulations associated with owning and operating a business can strain any relationship. The clearer the rules governing the relationship between the partners, however, the less likely it is that such stresses will undermine the relationship. Therefore, every partnership should consider having a properly drafted partnership agreement or consider converting to a limited liability company (which has the same flexibility of a partnership, but typically offers a number of advantages over a partnership, including limited liability protection) and having an operating agreement drafted in lieu of a partnership agreement.

If you become deceased unexpectedly and have partners, can you be legally certain that they will pay your family a fair price for your part of the business? back to top

You should also consider using a mechanism such as a buy-sell agreement to ensure that your family is treated fairly by your partners should you die unexpectedly prior to selling out your ownership rights in the partnership. To better ensure the availability of buy-out funds, a buy-sell agreement can funded by using a life insurance policy taken out and paid for by the partnership. Buy-sell agreements like insurance contracts are not part of your probate estate. Should you decide to convert your partnership to a limited liability company, you and your family are given some protection with regard to the value of your ownership interest by statute. However, this issue of valuation can be more specifically addressed in the company operating agreement, which can also provide that an insurance policy by taken out for the purpose of buying your ownership rights in the event of your death. See the section on Business Estate Planning for more information.

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