A general partnership is not a special thing you create. It is what happens by default when two or more people decide to run a business together to make money.
The reason founders care is this: when you run a general partnership, you have unlimited personal liability for what the business owes. There is no cap. If the business is sued and loses, and the partnership's own assets do not cover the judgment, creditors can reach your personal bank account, your house, and your savings. Both partners are responsible for the partnership's debts, including debts one partner took on without asking the other. The law calls this "joint and several liability," and it is the default (6 Del. C. § 15-306(a); Cal. Corp. Code § 16306(a)). The one statutory way out of it is to register the partnership as a limited liability partnership, which is a separate filing and is not what happens by default.
What the law actually requires
Delaware, California, and Wyoming all reach the same result: a partnership is formed when two or more people carry on a business together as co-owners for profit, whether or not they meant to form one. All three enacted a version of the Uniform Partnership Act, so the rule travels.
Delaware's 6 Del. C. § 15-202(a) says a partnership is formed by the association of 2 or more persons:
"to carry on as co-owners a business for profit ... whether or not the persons intend to form a partnership"
California's Cal. Corp. Code § 16202(a) uses nearly the same words: "the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership." Wyoming's W.S. § 17-21-202, titled "Creation of partnership," states the same rule.
Notice two things. First, intent does not matter. You do not have to say "we are forming a partnership." You do not have to sign an agreement saying you are partners. If you are running a business together to make money, you are partners whether you want to be or not.
Second, the statute says "a business for profit." That matters. Owning property together is not enough. Delaware § 15-202(c)(1) says joint tenancy, tenancy in common, joint property, common property, or part ownership "does not by itself establish a partnership," and § 15-202(c)(2) says sharing gross returns does not by itself establish one either. So two people who inherit an apartment building are not partners just because they hold the title together. They become partners when they operate it as a business for profit. California's statute carries the same exceptions.
But here is what most people miss: you do not have to file anything with the state to have a partnership. There is no required registration. No state form. No fee. No registration number. This is different from an LLC or a corporation, which you have to file to create.
Some states have optional registration. Delaware lets a partnership file a Statement of Partnership Existence under § 15-303, which gives the partnership's name and its registered office and agent. California lets you file a Statement of Partnership Authority (Form GP-1); the California Secretary of State states plainly that "Registering a GP at the state level is optional." Filing fees change by administrative notice, so check the state's current fee schedule rather than any number you read in an article. But "optional" means what it says. You do not have to file. Partnerships run for years without filing anything.
That is the trap. Most people think, "We did not register, so we are not a partnership yet." That is backwards. You do not register to become a partnership. You are already a partnership. Registration is just documentation that you already exist.
What partners owe
When a partnership exists, each partner is liable for what the business owes. This is called joint and several liability. It means three things:
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Each partner is fully liable for all partnership debts, not just their share. A creditor can name either partner in the suit for the whole obligation. It does not matter if one partner did only a fifth of the work.
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Each partner can bind the partnership. Under 6 Del. C. § 15-301, an act by a partner "for apparently carrying on in the ordinary course the partnership's business" binds the partnership, unless that partner had no authority in the matter and the other side had notice of it. So a contract one partner signs in the ordinary course of the business binds both partners, even if the other partner never saw it. The limit is that an act outside the ordinary course of business binds the partnership only if the other partners authorized it.
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The partnership does not shield the partners. If someone sues the partnership and wins, the partners are on the hook personally. There is a sequence, though. Under 6 Del. C. § 15-307(d), a judgment creditor of a partner generally may not levy on that partner's personal assets until a judgment against the partnership has gone unsatisfied, or the partnership is in bankruptcy, or the partner agreed, or a court permits it. The sequence buys time. It does not cap the exposure.
This is why most founders incorporate or form an LLC. An LLC or corporation is a separate legal person. It owes money. You own the company, but the company owes the debt, not you. A partnership does not work that way.
🇺🇸 If the IRS counts you as a U.S. person
The law that forms the partnership does not care about citizenship or residency. None of these statutes mention either one. The test is whether you are running a business together for profit, not where you live or which passport you carry.
This means: If you and another person run a business together, you are partners. Both of you have unlimited personal liability for all partnership debts, regardless of your citizenship, immigration status, or where you live.
That is the full answer. The rule is the same for everyone.
🌏 If it does not
The rule does not change. If you and another person run a business together, you are partners. Both of you have unlimited personal liability for all partnership debts.
This is one of the few places in this guide where the answer really is identical for both groups. A nonresident cannot avoid this by being foreign. A U.S. person cannot escape it by being American. The rule is the rule.
What stays the same on both sides
| What | The rule |
|---|---|
| When a partnership forms | Automatically when two or more people carry on a business together as co-owners for profit |
| Whether registration is required | No. A partnership exists whether you file anything or not |
| Whether intent matters | No. You can be partners even if you never said the word "partnership" |
| Liability of each partner | Unlimited, joint and several by default. Each partner is personally responsible for all partnership debts unless the partnership registers as a limited liability partnership |
| Whether citizenship matters | No. The rule is the same for citizens and nonresidents |
| Whether you can dissolve it by leaving | No. You can leave, but the partnership may continue. You are still liable for debts run up while you were in the partnership |
The reason this matters is that many founders assume that because they did not file any paperwork, they do not have a partnership yet. That assumption costs money. The partnership exists. The liability is real. It is just invisible until something goes wrong.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Assuming that because you did not register anything, you are not partners yet. You are wrong. The partnership is there, and so is the unlimited liability.
- Thinking one partner can run the business alone and keep the profits while the other partner avoids the risk. They cannot. Both partners are liable, even if only one partner was active.
- Trusting a handshake agreement. The statute does not require a signed agreement, so a partnership can exist on an oral understanding alone. When something goes wrong, the other partner or a creditor can assert that a partnership exists, and the unlimited liability comes with it.
🌏 If it does not
- Assuming that because you are not a U.S. person, the partnership laws do not apply to you. They do. The formation rule is in state law, not tax law, and it applies equally to nonresidents.
- Thinking that you can leave a failing partnership and escape the liability. You cannot. Under 6 Del. C. § 15-703(a), dissociation "does not of itself discharge the partner's liability for a partnership obligation incurred before dissociation." Walking away ends your future participation, not your past debts.
- Walking away quietly and telling no one. Under 6 Del. C. § 15-703(b), a partner who leaves can still be liable for obligations the partnership takes on within one year after dissociation, if the other side reasonably believed the departing partner was still a partner and had no notice of the dissociation. Filing a statement of dissociation under § 15-704 puts third parties on notice and closes that window.
FAQ
What is the difference between a general partnership and a limited partnership?
In a general partnership, all partners have unlimited personal liability for all debts. In a limited partnership, there are general partners (who have unlimited liability) and limited partners (who have liability only up to what they invested). A limited partnership must be formally registered with the state. A general partnership does not.
Does a general partnership have to file anything with the state?
No. A general partnership is formed automatically the moment two or more people start running a business together for profit. Filing is optional in most states. Delaware and California allow you to file a Statement of Partnership Existence or Authority, but you do not have to.
Can one partner make a decision for the whole partnership?
For ordinary business, yes. Under 6 Del. C. § 15-301, an act by a partner that is "apparently for carrying on in the ordinary course the partnership's business" binds the partnership, unless the partner lacked authority in that matter and the person dealing with them had notice of it. So if one partner signs a routine contract, hires an employee, or takes out a business loan in the partnership's name, the partners are liable. An act outside the ordinary course of business is different: it binds the partnership only if the other partners authorized it.
Is a general partnership the same as a sole proprietorship?
No. A sole proprietorship is one person running a business by themselves. A general partnership is two or more people. In both cases, there is no legal separation between the person and the business, so the owner or owners have unlimited personal liability.
What happens if I want to leave a general partnership?
You can withdraw. Under 6 Del. C. § 15-601(1), you are dissociated when the partnership has notice of your express will to withdraw. No state filing is required to make that happen. What the filing does is different: a statement of dissociation under § 15-704 gives notice to outsiders, which matters because § 15-703(b) can keep you liable for obligations the partnership incurs within one year after you leave if the other side reasonably believed you were still a partner and had no notice. And under § 15-703(a), withdrawing never discharges you from partnership debts incurred before you left.
Can I have a general partnership with someone who lives in another country?
Yes. The law does not care where the partners live. If you and someone in another country are running a business together for profit, you have a general partnership, and both of you are personally liable for all debts. The only complication is that suing someone in another country is more difficult. That does not change the liability. It just makes it harder to collect.
What is the difference between a general partnership and an LLC?
The main difference is liability. In a general partnership, partners have unlimited personal liability. In an LLC, owners (called members) are usually protected from personal liability. An LLC must be formally registered with the state and requires at least one member. A general partnership forms automatically with two or more co-owners.
If I register as a general partnership, will that protect me from liability?
No. Filing a Statement of Partnership Existence in Delaware or a Statement of Partnership Authority in California does not change the liability rule. Those filings are public records about the partnership. Delaware's statement carries the partnership's name and its registered office and agent; California's records the scope of the partners' authority. Neither one shields a partner from personal liability. If you want limited liability, you need a different entity, such as an LLC or a corporation, or a separate registration as a limited liability partnership.