Steps Involved in Setting Up a Partnership

Setting up a business partnership is generally a straightforward process. Two basic types of business partnership exist: the general partnership and the limited liability partnership. Both types of partnership are relatively easy to set up and follow many of the same basic steps, but creating a limited liability partnership often demands more attention to organizational details. Hiring an attorney to walk you through the limited liability process is thus advisable.

Step One: Choose a Name

When setting up a partnership, the first thing you will want to do is choose a name for the partnership. While this may sound simple, you need to be sure the name does not violate the trademark rights of another business. There are several ways to determine if another business already has your desired name. You can do a name search online through the website of the U.S. Patent and Trademark Office (USPTO), as well as a search of registered business owners, though this has to be done through the secretary of state’s office in each state.

Step Two: Determine Which State to Register

After you have decided on a name for your partnership, you must determine the state in which to register your business. While this decision is especially important for corporations because of the differences in corporate law among states, for partnerships it is less so. Generally, laws pertaining to partnerships are fairly uniform throughout the country, and many times the terms of the partnership agreement themselves will supersede state provisions governing partnerships. A good rule of thumb here is to register the partnership either in your state of residence, or in the state where you plan to do business.

Step Three: Management, Investments & Profits

Next, determine the specifics of how the partnership will be managed, how much each partner will invest, and how the profits will be shared. While the greater the size of the investment means the larger the percentage of ownership, the biggest investor may not even want to run the business. Also, while you may determine that all partners have equal power in decision-making, certain partners may have to be designated as having the authority to make decisions on day-to-day operations and the general management of the business. Making these structural determinations early on will ensure that the business starts off smoothly.

Step Four: Draft a Partnership Agreement

Once you have made these preliminary decisions, draft a partnership agreement. While a partnership agreement is not required, it is strongly advised. A partnership agreement will lay out the percentages of ownership and the details of how the partnership is to be run under various circumstances, helping to avoid any conflicts between partners down the road. Having a partnership agreement on record may also allow you to bypass certain provisions of state partnership law, which is handy if you do not happen to agree with some of them. If you expect that your agreement may be complex, or just want some advice on drafting a partnership agreement, consult a business attorney.

After drafting the partnership agreement, determine whether you are going to draft a “statement of partnership,” for a general partnership, or a “certificate of limited partnership” for a limited liability partnership. These documents will identify the partnership as existing within the state you selected. While neither the statement of partnership or the certificate of limited partnership are mandatory, they are recommended along with the partnership agreement.

Step Five: Employer Identification Number & Bank Account

Lastly, obtain an employer identification number (EIN) and open a business bank account. Doing so will allow you to begin separating business income taxes from your own personal income taxes. You should also be sure to check with the state you are registered in to determine if there are any permits or licenses needed to run your business.

Getting Legal Help

Once you have completed all the steps above, you will be well on your way to operating a successful partnership. If at any point you have questions or other issues to resolve in setting up your partnership, do not hesitate to contact an experienced business attorney.

Case Studies: Steps Involved in Setting Up a Partnership

Case Study 1: Choosing the Right Partnership Name

John and Sarah are starting a new business partnership in the fashion industry. They both have ideas for a business name but want to ensure they don’t infringe on any trademarks. To secure their chosen name legally, they conduct a thorough name search through the U.S. Patent and Trademark Office and the secretary of state’s office. By diligently verifying the name’s availability, they avoid potential legal disputes and proceed confidently with their chosen partnership name.

Case Study 2: Determining State of Registration

Emily and Michael are setting up a consulting partnership that will operate across multiple states. They need to determine which state they should officially register their partnership in. Since partnership laws are relatively uniform nationwide, Emily and Michael decide to register in the state where they plan to do most of their business. By selecting a strategic state of registration, they streamline the administrative process and ensure compliance with state-specific regulations.

Case Study 3: Drafting a Comprehensive Partnership Agreement

Samuel and Laura are starting a limited liability partnership (LLP) for their technology startup. Understanding the complexity of an LLP, they hire a business attorney to draft a comprehensive partnership agreement. The agreement outlines each partner’s investment, profit-sharing arrangements, decision-making authority, and provisions for various scenarios. With a well-drafted partnership agreement, Samuel and Laura protect their interests and foster a harmonious partnership.