General partnerships are the simplest way to organize a business that has more than one owner. Partnerships are not as complicated as corporations to form. All it takes is two or more prospective partners, a desire to earn a profit, and an agreement between the partners hopefully in written form. Partners must share a vision or goal for the business in order to achieve success, and must have an equal commitment on all levels. There should be contingency plans in place to handle dissolution or dispute. This is why general partnership agreements should be drawn up carefully by an attorney and signed by all partners. There are actually a few forms involved in creating a general partnership; let’s explore some of the paperwork involved.
Partnerships should obtain a business certificate from the local jurisdiction in order to do business. If you are “doing business as” under a fictitious name, you will usually be required to fill out a fictitious owner affidavit and file with the appropriate office; this will inform the local government that the business is owned by a person named in the document, who operates business under an assumed name. The county clerk’s office is the best source of information on all the necessary certificates and documents required by that specific jurisdiction. If you plan on doing business across state lines make sure to look into the laws of each county and state you plan on working in.
A partnership should obtain a Federal Employer Identification Number (FEIN). This number can be obtained by filing a Form SS-4 Application for Employer Identification Number. This number is the business equivalent to a Social Security Number for individuals. FEINs are used by all sorts of business entities, and the IRS uses this number to identify taxpayers who are in business.
Partnership Agreements
The partnership agreement should have an explanatory statement at the beginning outlining who the partners are and what they want to do.
The duration of the partnership should be clearly stated in the agreement, including any events that might cause the partnership to be dissolved prior to the set date.
The amount and time of contributions to be made by each partner should be clearly outlined in the document.
The document should clearly state the management expectations for each partner, as well as who will control the partnership and to what degree.
The agreement should identify how a partner’s interest will be valued if a partner dies or withdraws from the partnership. The “right of first refusal” specifies that the partnership or partners within the partnership will have the right to buy a withdrawing partner’s interest before someone outside the partnership. This will allow for the continuation of the partnership if an event causing the dissolution of the partnership might occur.
Partner responsibilities and duties should be described.
The time of distributions of cash or property should be clearly outlined.
Allocation of profit and loss amongst the partners should be described.
There should be a policy regarding the admission of new partners into the partnership in the partnership agreements.
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