How do I set up a partnership?

How do I set up a partnership?

Partnerships are relatively cheap and easy to setup. The basic steps involved for setting up a general partnership (limited partnerships follow the same basic steps, but some of the organizational details tend to be more complicated) are as follows:

1. Figure out which state the partnership is going to be organized in.

2. Figure out whether you are going to set the partnership up on your own or whether you are going to have an attorney help and guide you (it is especially advisable to have the help of an attorney if you are setting up a limited partnership or an LLP).

3. Pick a name for the partnership. In doing this, you should generally do a trademark search, to ensure that someone else is not using the same trade name, and you should also conduct a search of state records for registered businesses, where available, for the same reason.

4. Determine the relationship of the partners to the partnership - that is, work out what percentage ownership each partner will have, how much each partner will invest, what percentage of profit distribution each partner is entitled to, etc.

5. Determine how the partnership is going to be controlled and managed. For general partners, all of the partners usually control the partnership equally, so this is not a complicated matter. However, you may choose to have certain partners act as managing partners, in which case this step becomes more important.

6. Draft a partnership agreement. While it is not necessary to have such a written agreement, it is highly advisable.

7. Decide whether to draft and file a statement of partnership (for a general partnership) or a certificate of limited partnership (for a limited partnership).

8. Obtain a federal tax ID number (known as the employer identification number) for your partnership. You can obtain this number, which is essentially the business version of a social security number, from the IRS. It will be necessary to have a federal tax ID number to conduct many transactions on behalf of the partnership (opening a bank account, for example).

9. Check the state and local laws to determine if there are any other registrations you must make, or any licenses or permits you must obtain to operate your business.