A general partnership is an organizational structure under which the partners in a business have unlimited personal liability for the obligations of the entity. Under this arrangement, all partners are assumed to have certain management responsibilities for running the organization. A key advantage is that employees can aspire to be made a partner, and thereby share in the profits of the entity. The result can be an unusually motivated group of employees with low turnover, especially if the management group regularly promotes employees into the partnership.
Given the personal financial risk taken on by a general partner, it is common for some investors to instead be designated as limited partners. Under this arrangement, a limited partner is only liable for the amount of his or her investment in the partnership. Once that initial investment has been consumed, a limited partner bears no additional personal liability.
The partners in a general partnership are not employees, and so do not submit a Form W-2 to the IRS. Instead, they file a Form K-1, which states their shares of the partnership's gains or losses.
It is not necessary to have a formalized general partnership agreement, though such a document is usually created when the business commences operations.