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General Partnerships

General partnerships in Colorado are governed by the Colorado Uniform Partnership Act (1997). The definition of a partnership is when two or more people associate to carry on, as co-owners, a business for profit.

General partnerships actually are very easy to form. It’s not necessary to have a written agreement between partners, nor does the partnership have to be registered with the Secretary of State. The ease of forming a general partnership can be major a disadvantage, however, as such a partnership can be formed even if the parties involved in one never desired to do so. If two or more people carry on as co-owners in a business for profit, then a partnership has been formed – regardless of the actual intention of the parties. The risk of this is that every partner within a partnership has unlimited liability for the acts of every other partner. For this reason, I generally don’t advise my clients to form a general partnership. Moreover, if I notice that two of my clients are acting in a manner that would construe their relationship as a general partnership, I advise them to choose another entity form and put it in writing.

There is another thing to be especially careful about in a general partnership – strangely, a partnership between two people does not automatically end when partner withdraws from the partnership. In fact, the person who withdrew may have first assigned all of their interests to another person, called an assignee. The assignee of the former partner could demand a liquidation of the partnership’s business – even if a partnership agreement said there would be no buyout of a withdrawing partner.

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