Checklist: Starting a Partnership
Starting a business partnership can be an exciting venture for entrepreneurs. However, it's essential to follow a series of steps to ensure your partnership operates smoothly. This also helps ensure the partnership complies with legal requirements. Partnerships are easier than corporations and limited liability companies (LLCs) to set up. But they still need some effort to get off the ground.
In this article, we'll provide you with a checklist for starting a business partnership. Remember that while this guide provides a general overview, it's always a good idea to seek legal advice tailored to your specific situation.
Decide on a Business Name
The first step in starting a business partnership is deciding on a name for your venture. It should reflect your business idea and be memorable to potential customers. When choosing a name for your partnership, you may decide to use the names of the partners as many law firms do, for example. Or, you might go with something more descriptive of the business. You also may choose a fictitious business name, or “Doing Business As" (DBA), under which to advertise and promote the partnership. Take time to brainstorm and choose a name that represents your business values and goals.
Search Availability of Your Partnership Name
After deciding on a business name, you will want to check if it's available for use. You can do this by conducting a name search with your state's business registration office. Check to see whether your ideas are already on the list of fictitious or assumed business names on record with your county clerk or Secretary of State. The Small Business Administration (SBA) and local zoning offices can provide guidance in this area.
There are many sources for searching the availability of a business name, including the U.S. Patent and Trademark Office's trademark search tool, but you may want to start with just a simple Internet search.
Even if the name is not taken by another business, your general search may reveal that the chosen name already has associations that would be detrimental to your business or confusing to customers. This step ensures that your chosen name is not already in use by another business in your state. Also, look for similarities to existing names (which can cause confusion or present image problems). Avoid legal disputes later on by searching the availability of your name.
Register Your Partnership Name
Once you've confirmed the availability of your business name, you should register it with the appropriate state authorities. Registering your partnership name provides legal protection. It also helps ensure that no one else can use the same name within your state. This step typically involves filing the necessary paperwork for your business structure. You will also need to pay the required fees.
To establish your business as a legal entity, you may need to register it with the state where you plan to operate your business. You also must register your partnership by filing a "certificate" or "registration" of partnership with the Secretary of State office. This step is required most often for limited liability partnerships (LLPs) and limited partnerships, as opposed to general partnerships. You can learn more about types of partnerships here.
Decide on the Type of Partnership
Choosing the right type of partnership is a crucial decision for business partners. There are different types of business partnerships. Each type has its own set of characteristics and implications for personal liability and decision-making. A general partnership is where business partners share equal responsibility for the business's operations. Each partner also has unlimited liability for the business's debts and obligations.
A limited partnership consists of general partners who manage the business and limited partners. Limited partners invest capital but have limited involvement in day-to-day operations. Limited partners also have limited liability. This means their personal assets are protected to the extent of their investment. General partners maintain unlimited liability.
A limited liability partnership provides personal liability protection to individual partners. This shields partners' personal assets from business-related debts and lawsuits. They are commonly used in professional services firms, such as law or accounting practices.
Consider getting legal help when deciding which type of partnership is right for you and your business.
Create and Sign a Written Partnership Agreement
The partnership agreement is a very important document in the formation of a partnership. This agreement outlines the terms and responsibilities that affect each partner. The agreement will include the name of your business and the contributions, duties, and responsibilities of each partner.
It should address important aspects like partner shares, business decisions, and personal liability protection. It is advisable to consult with a legal professional when drafting this agreement. Lawyers can help ensure the agreement aligns with state law and your business needs.
Obtain Business Licenses and Permits
Depending on your business activities and location, you may need to obtain specific licenses and permits to operate legally. These requirements vary by state and industry. For instance, a law firm organized as a partnership must ensure that each partner is a licensed attorney. The types of licenses and permits include the following:
It's crucial to research and comply with relevant regulations.
Open a Business Bank Account
Opening a business bank account is a crucial step for business owners. This can help protect their personal assets and streamline their financial operations. To do so, you'll need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). The EIN serves as your business's federal tax ID number.
With a dedicated bank account for your business, you can separate your personal income and expenses from those related to your business operations. This makes it easier to track income, pay taxes, and file accurate tax returns. This separation is essential for maintaining the integrity of your personal tax returns and ensuring compliance with both federal and state tax regulations.
By managing your finances through a separate bank account, you pave the way for a successful business while safeguarding your personal assets.
Get Help From a Business Organizations Attorney
Forming a partnership can be a long-term benefit to your new business in the long run. The process, most notably drafting a comprehensive partnership agreement, can be quite complicated. To ensure that your new partnership covers all legal bases and has the best chance for success before opening the doors, you may wish to consult a professional.
Contact a small business attorney in your area today.
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