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As if all of the risk and double the exposure were not bad enough, there are other disadvantages to operating as a general partnership:

• Termination. A partnership terminates when one partner dies, leaves, or goes bankrupt. You may be surprised by some unexpected event.

• Sale. Most sophisticated buyers do not want the risk of being in a general partnership. This will hinder the ability to sell your interest in a general partnership.

• Self-employment taxes. We will be discussing those darn Social Security and Medicare taxes throughout this book. Please note here that all general partners (even those not considered employees of the partnership) must pay self-employment taxes on their share of partnership income. Several good entities ahead offer ways to reduce such taxes.

With her life savings gone and her vision of her own business dashed, Louise unhappily went back to work at the department store.

As Case No. 2 illustrates, with a general partnership you have double the exposure of a sole proprietorship. Not only you—but your partner—can put your personal assets at risk. All of the risk and double (or triple or more depending on the number of general partners you have) the exposure is not a good way to do business.

As our first two cases point out, it is important to select the correct entity at the start. (And, please note, not all of our stories will be so dire. It is just that right now we are dealing with bad entities.)