Arizona General Partnerships

You should never establish and operate a general partnership. Every partner in a general partnership is 100% liable for everything that goes on in the business. This means that if the business incurs substantial liability, the creditors of the business will first seek to satisfy their claims from the business assets but, if there are not sufficient assets to satisfy those claims, the creditor will go after the individual personal assets of each and every partner. There simply is no reason to have such a business entity.

Then why does a person form a general partnership? In reality, they do not. Two individuals decide they want to go into business and they start conducting business. They have not filed anything with the Arizona Corporation Commission and, generally, have no type of partnership agreement. Under the circumstances, Arizona Revised Statutes defines this business relationship as a general partnership and is then governed under Arizona’s general partnership laws. If there is already an established partnership, it is wise to have that partnership agreement in place which specifies the rights and obligations of all partners; however, it is clearly best to avoid establishing a general partnership in the first instance. Consideration should be given to convert it to another type of business entity. For a consultation on partnership law, please contact us.