Forming a Partnership: A Step-by-Step Guide
Step 1: Choose A Name for the Business Partnership.
Choosing a name for your new partnership is a very important task. This is the name that will represent your firm’s services to the world. With that in mind, the name of your partnership should reflect something unique about your firm that will encourage customers or clients to want to do business with you.
Additionally, some states may require the use of specific wording at the end of the partnership name, for example, Smith and Jones, LLP, or Smith and Jones, Limited Liability Partnership.
Step 2: Check Availability of your Name.
Many states prohibit the use of “same” or “similar” names with respect to many types of business entities. So before going whole hog and ordering stationary and business cards, make sure that your name is available. There are as many as three different places where you can check for availability of a business entity name.
- Your local county registrar of fictitious business names has a database of registered names that you will not be able to use. If you are planning on using a name different than your full legal name, you will need a fictitious business statement, also known as a, DBA). See Step 6 for additional information.
- Many Secretary Of State offices provide name availability and name reservation services. Some states allow you to check online and others request that you submit a request to search for name availability by mail. A shortcut is to check to see if your state offers a business search option, and if so, search the business database for similar names. Keep in mind that even though there might not appear to be a direct match, it is up to the discretion of the Secretary of State as to whether or not your proposed name is too similar to another name and therefore rejected for use. Once you have a name selected and you feel confident it is available for your use, you can either submit your name reservation for a fee, or proceed to file your formation documents.
- Consider whether or not you will want federal and/or state tradename protection for your partnership name. Regardless of whether or not you will be seeking trademark protection, if another entity has a registered trademark using your name or even a similar name, at some point in the future, you might receive a letter from a third party claiming that you are in violation of their registered trademark and request that you cease and desist from further use of the name. This can occur even if your name is accepted for use by your Secretary of State’s Office. For that reason, it is always recommended that you check the United States Patent and Trademark Office and your home state trademark and service mark database for conflicts.
Step 3: The Partnership Agreement.
It is inconceivable in today’s world of conflict and endless litigation that two or more people could come together and start a business without an agreement detailing the terms and conditions of how the business will be operated. Although it is not legally required, it is strongly recommended that a partnership agreement be drafted and executed that includes, but is not limited to, the rights and responsibilities of each partner, capital contributions, the procedure for the removal, resignation or the death of a partner, how revenues will be shared.
Step 4: State Filings.
Most states do not require the filing of a Statement of Partnership or a Statement of Authority in order for a partnership to be legal. It is however recommended that such documents be filed in order to provide public notice of basic information about the partnership, such as the agency authority of its partners.
Step 5: Get a Federal Taxpayer Identification Number (EIN).
Once your partnership has been organized, it is recommended that you obtain a federal tax identification number (EIN) from the IRS. This EIN is required in order for the partnership to open a bank account, and will also be needed if the partnership will be hiring employees. For more information, see: http://www.irs.gov/pub/irs-pdf/fss4.pdf
Step 6:. Registering your Partnership name as a Fictitious Business Name.
If your partnership name is not your given legal name (as it appears on a government issued document, such as a driver’s license or a passport) most states require that you file a Fictitious Name Statement, Certificate of Assumed Name or a Fictitious Name Certificate with your local county registrar/recorder’s office, or in some states with a court or parish clerk’s office.
Step 7: Open a Partnership Bank Account.
Once you have secured your EIN, you may proceed to open your new partnership bank account. Some banks may require not only your EIN but a copy of your filed Fictitious Name Statement/Certificate, a conformed copy of your Statement of Information, and a copy of your executed Partnership Agreement.
It is recommended that once you choose the bank where the account will be opened, to contact a new business representative and inquire as to what specific documents you will need to open the account. This will save you several trips back and forth.
8: Obtain Any Required Local/State Licenses.
with your local city or county government to determine whether or not you are required to secure a business license for your partnership. Failure to apply on a timely basis may subject the partnership to fees and penalties. Note: City/County business licenses may be used to determine whether your partnership is subject to City/County business taxes. If so, there are normally annual informational returns that are required to be filed. Do not ignore this step.
Step 9: Other Regulatory and/or Tax Obligations.
If your partnership will have employees, most likely you will be subject to payroll withholding tax (on both the federal and state levels) and worker’s compensation insurance obligations. Check with the IRS, your state employment development department, division of worker’s compensation and other employment taxing authorities to determine what your obligations are.
Finally, if your partnership will be selling, leasing personal tangible property, or sell taxable services at retail or wholesale, all states require that you obtain a Seller’s Permit, unless the property or services involved are exempt from sales or use tax.
Seller’s Permits are issued by a state's department of consumer affairs, department of revenue or Secretary of State.