By Jake Lawson, LLC Formation Strategist
Virginia entrepreneurs considering a general partnership, let me save you time and potential financial disaster: don’t do it. After helping 300+ Virginia business owners structure their partnerships properly, I’m sharing the unfiltered truth about why general partnerships are legal landmines disguised as simple business structures.
Bottom line first: Virginia general partnerships offer zero asset protection while creating unlimited personal liability for all partners. For virtually the same effort and cost, you can form a Virginia LLC that provides the same tax benefits plus crucial liability protection.
What Is a Virginia General Partnership? (The Legal Reality)
A Virginia general partnership automatically exists when two or more people agree to operate a business together for profit. That’s it. No paperwork required with the state—which is exactly the problem.
Governed by: Virginia Uniform Partnership Act (Title 50, Chapter 2.2)
Formation requirement: Mutual agreement to do business together
State filing: None required
Liability protection: Zero
The Brutal Truth About General Partnership Liability
Unlimited Personal Liability for All Partners
Every partner is jointly and severally liable for all partnership debts and obligations. This means:
- Your personal assets are at risk: House, car, savings, investments—everything
- You’re liable for your partners’ business decisions: Even ones you didn’t approve
- One partner’s mistake affects everyone: Bad judgment by one partner can bankrupt all partners
- No liability shield whatsoever: Unlike LLCs or corporations
Real-World Scenario
Example: Your Virginia general partnership gets sued for $500,000. Even if you only own 25% of the business and had nothing to do with the incident, you’re personally liable for the entire $500,000 if your partners can’t pay their shares.
Jake’s reality check: This isn’t theoretical. I’ve seen Virginia entrepreneurs lose their homes because of partnership liabilities they didn’t even create.
Virginia General Partnership Requirements
What’s Required
- EIN from IRS: Mandatory for tax filing (Form 1065)
- Business licenses: Based on your industry and location
- DBA filing: If using a business name different from partners’ names
- Partnership agreement: Not legally required but essential for banking
What’s Optional (But Smart)
- Written partnership agreement
- Business bank account
- Professional liability insurance
- Statement of Partnership Authority (Form UPA-93)
Step-by-Step Virginia General Partnership Formation
Step 1: Business Planning (Critical Foundation)
Partner selection: Choose carefully—you’re legally married to these people for business purposes.
Ownership percentages: Determine profit/loss sharing and decision-making authority.
Capital contributions: How much money/assets each partner invests.
Management structure: Who makes what decisions and when.
Step 2: Draft Partnership Agreement (Essential Protection)
Must include:
- Ownership percentages and capital contributions
- Profit and loss allocation
- Management responsibilities and decision-making authority
- Dispute resolution procedures
- Partner withdrawal and dissolution terms
- Death/disability provisions
Jake’s warning: Virginia’s default partnership laws kick in without a written agreement. These defaults rarely match what partners actually want.
Step 3: Business Name and DBA Filing
Virginia DBA requirements:
- File Certificate of Assumed or Fictitious Name
- $10 filing fee with Virginia State Corporation Commission
- Required if using any name other than all partners’ full legal names
Process: Online through Virginia SCC Clerk’s Information System or mail
Step 4: Obtain EIN
Required for:
- Partnership tax return filing (Form 1065)
- Business bank account opening
- Employee payroll (if applicable)
Process: Free through IRS website (15 minutes online)
Step 5: Business Licenses and Permits
Check requirements for:
- Local business license (city/county)
- Industry-specific licenses
- Professional licenses (if applicable)
- Sales tax registration
Resources: Virginia.gov Professional Licenses, local city/county offices
Step 6: Business Banking and Records
Bank account requirements:
- Partnership agreement
- EIN confirmation letter
- DBA certificate (if applicable)
- Photo ID for all partners
Record keeping: While Virginia doesn’t specify requirements, maintain tax records, partnership agreements, and financial statements.
Virginia General Partnership Taxes
Federal Tax Treatment
- No entity-level taxation: Partnership doesn’t pay federal income tax
- Pass-through taxation: Profits/losses flow to partners’ personal returns
- Form 1065: Annual informational return required
- Schedule K-1: Partners receive showing their share of income/losses
Virginia State Taxes
- Pass-through entity: Similar to federal treatment
- No state entity tax: Partners pay on personal Virginia returns
- Registration may be required: Check with Virginia Department of Revenue
Self-Employment Tax
Important: Partnership income is subject to self-employment tax for active partners (15.3% in addition to income tax).
Why I Never Recommend Virginia General Partnerships
1. Unlimited Liability Nightmare
The problem: Every partner risks everything for every business decision.
Better solution: Virginia LLC provides liability protection with identical tax treatment.
2. Partner Disputes Without Clear Resolution
The problem: Without detailed agreements, Virginia default laws govern disputes.
Reality: These defaults rarely match what partners actually intend.
3. Difficulty with Banking and Credibility
The problem: Banks and vendors often don’t understand general partnerships.
Result: Constant explanations and complications in business dealings.
4. Estate Planning Complications
The problem: Partner death or disability can automatically dissolve the partnership.
Consequence: Surviving partners may lose the business through forced liquidation.
5. No Exit Strategy Protection
The problem: Partner withdrawal can trigger partnership dissolution.
Risk: Remaining partners lose their business investment.
Virginia LLC vs General Partnership Comparison
| Factor | General Partnership | Virginia LLC |
| Liability Protection | None | Full protection |
| Formation Cost | ~$25 (DBA + EIN) | $139 ($39 service + $100 state fee) |
| Annual Requirements | Minimal | $50 annual report |
| Tax Treatment | Pass-through | Pass-through |
| Business Credibility | Low | High |
| Banking Ease | Difficult | Easy |
| Management Flexibility | Limited by law | Flexible by agreement |
| Estate Planning | Complicated | Straightforward |
Jake’s analysis: For $114 more upfront, you get massive liability protection and business credibility. It’s the easiest decision in business.
When General Partnerships Might Make Sense (Rare Cases)
Very Short-Term Ventures
- Single project with defined end date
- All partners fully understand and accept unlimited liability
- Professional liability insurance covers anticipated risks
Family Businesses with Existing Legal Structures
- Family members already have comprehensive liability insurance
- Temporary arrangement pending formal structure
- All assets already protected through other legal mechanisms
Jake’s reality: I’ve advised thousands of entrepreneurs. I can count on one hand the times a general partnership was the right choice.
The Smart Alternative: Virginia LLC Formation
Why Virginia LLCs Win
Liability protection: Personal assets protected from business debts
Tax efficiency: Same pass-through taxation as partnerships
Credibility: Banks and vendors understand and respect LLCs
Flexibility: Operating agreements can mirror partnership structures
Longevity: LLCs continue despite member changes
Virginia LLC Formation Process
- Choose LLC name: Check availability through Virginia SCC
- File Articles of Organization: $100 state fee
- Appoint registered agent: Required Virginia address
- Create operating agreement: Define member relationships
- Obtain EIN: Same process as partnerships
- Get business licenses: Same requirements as partnerships
Total cost: $139 with professional service vs. $25 for general partnership Value proposition: Unlimited liability protection for $114 extra
Professional Services Recommendations
LLC Formation Service
Northwest Registered Agent: $39 + $100 state fee = $139 total
- Includes registered agent service first year
- Privacy protection options
- Expert Virginia formation experience
Legal Counsel
When needed:
- Complex ownership structures
- High-liability businesses
- Significant personal assets at risk
- Professional practices (law, medicine, etc.)
Accounting Services
Essential for:
- Multi-member tax planning
- Self-employment tax strategies
- Virginia tax compliance
- Financial record systems
Red Flags: Don’t Form a General Partnership If…
- Any partner has significant personal assets to protect
- The business involves any liability risk (most businesses do)
- You need business banking or credit
- You want professional credibility
- You plan to have employees
- You’re considering taking on investors
- Estate planning is important to any partner
Bottom Line: My Virginia Partnership Recommendation
For 99% of Virginia entrepreneurs: Form a Virginia LLC instead of a general partnership. The minimal additional cost provides massive liability protection and business credibility benefits.
For the 1% exception: If you absolutely must use a general partnership (and I can’t imagine why), draft a comprehensive partnership agreement with experienced Virginia business attorney.
Strategic advice: Don’t let the “simplicity” of general partnerships fool you. Simple formation creates complex problems later. Invest the extra $114 upfront to avoid potentially devastating liability exposure.
The smart play: Protect your personal assets, gain business credibility, and maintain tax efficiency with a Virginia LLC. Your future self will thank you when you’re not risking your home for business debts.
Ready to protect your Virginia business properly? Skip the general partnership liability trap and form a Virginia LLC that provides the partnership benefits you want with the asset protection you need.
Need personalized guidance on Virginia business structure decisions? Contact Jake Lawson at llciyo.com for expert advice that protects your personal assets while optimizing your business structure.