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5 Min. Read

How to Set Up a Partnership in Business: A Step-By-Step Guide

How to Set Up a Partnership in Business: A Step-By-Step Guide

Are you looking to set up a business partnership?

Setting up and running a business partnership is an exciting step for business owners, but it can also be daunting. There are lots of things to consider before you start your journey together. You’ll learn how to name your new company, register with government agencies and more. This guide will help you navigate the process with ease so that you’re ready for success from day one.

Here’s What We’ll Cover:

How to Set Up a Business Partnership

What Are the Legal Requirements for a Business Partnership?

What to Know about Business Partnership Taxes

Different Types of Partnership for Businesses

Key Takeaways

How to Set Up a Business Partnership

Setting up a business partnership is not an overly difficult process. You'll need to follow a few important steps to make your new business official. There's also a few things you can do to set yourself up for success.

Step 1: Assemble your team

Before you start your partnership, you’ll want to assemble a team. This may include partners or co-owners, as well as any other employees you intend to hire on full time. Talk about what each person will contribute and how much capital investment is necessary.

Step 2: Name your new company

The next step to setting up a business partnership is choosing the right name. You want to choose something that's easy to remember. Make sure it doesn't infringe on any trademarks. To avoid naming conflicts, search for existing business names on your state's business website. Check name generators online for help with ideas.

Step 3: Choose an available business structure

After you finalize the name of your new business, you’ll need to choose a legal structure. This includes sole proprietorship, general partnership and limited liability company (LLC). Each has its own benefits and drawbacks, so carefully consider which is best for you. This guide will focus on the partnership.

Step 4: Register with government agencies

Registering for federal tax identification numbers. You can do this online by searching EIN. Also, consider any permits or licenses that may be necessary to operate in your state.

Step 5: Open a bank account

Open up a business checking account. You can start using this for daily expenses after your UBI tax ID number is assigned. Once you have an EIN, consider opening additional accounts for other types of transactions. Common examples are payroll or line-of-credit banking.

What Are the Legal Requirements for a Business Partnership?

It’s important to understand the legal responsibilities of a business partnership. This includes things like how you can keep your company's finances separate, as well as who does what in terms of daily tasks.

Partnerships are not required to draft an agreement between partners. However, drafting one helps set out each partner’s rights and obligations and can provide guidance for future disputes.

It’s also important to note that two people who are not partners but work together as an employer/employee relationship, can be held accountable for the actions of the other. This is why it’s always a good idea to draft a contract between these parties.

What to Know about Business Partnership Taxes

The IRS views partnerships as pass-through entities. This means that the business itself does not pay taxes on any of its profits. Instead, each individual partner is taxed on his or her share of profit at his or her personal income tax rate.

Partnerships must file an annual report with the federal government. This report provides basic information about the company. This includes the partnership’s principal business address, its EIN number and a list of all partners.

Different Types of Partnership for Businesses

Not all business partnerships are created equal. Before you get started, it's important to understand the different forms of business partnerships that exist. Here is a brief overview:

General Partnership

In this partnership agreement, all partners have unlimited personal liability for the company’s debts and obligations.

Limited Partnership

In this type of partnership, at least one partner has limited personal liability. Other partners (if there are any) have unlimited personal liability. They may offer their own limited liability to the partnership. Generally, each partner in a limited partnership is responsible only for his or her share of the business’s debts and obligations.

Limited Liability Partnership (LLP)

These partnerships provide all members with limited personal liability for certain debts and obligations. Each partner is not responsible for another’s negligence or wrongdoing. They can be sued if they personally cause damage to someone else.

Key Takeaways

There are a lot of considerations when it comes to setting up and running a business partnership. Some examples include naming your company, registering with government agencies and opening bank accounts. Before you get started on any of these tasks, make sure you understand the legal responsibilities. There is no one-size-fits-all option for partnerships. Each has its own benefits and drawbacks. Take time to carefully consider which type best suits your needs. Finally, don’t forget about taxes! This guide should give you some insight into how they work for partnerships as well as what types there are out there. With that said, be sure to consult an attorney for legal advice.