Question

1. A typical partnership agreement spells out details, such as the initial financial contributions cach partner will make, the specific duties and responsibilities each will assume, how they will share profits and losses), how they will settle disagreements, and how they will deal with the death or withdrawal of one of the partners. Well-written agreements can prevent common misunderstandings. Do research on the Internet to create a checklist regarding the steps, forms, and fees needed to establish a general partnership in your state. Explore what's required for naming the partnership, what should be covered in the partnership agreement, and the steps needed to register for tax purposes at both the state and federal levels.

Answer 1

In a general partnership, at least two people share ownership, and each owner is equally liable for debts and liabilities associated with the business. This differs from a limited partnership, in which a managing partner has liability while silent partners enjoy liability protection.

Follow the steps below to create one.

1. Choose a Name for the Business

While it may seem like minutiae, 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, some states require the acronym “LLP” to appear in brand names for all limited liability partnerships. Check with your state’s Chamber of Commerce to see if any name requirements exist for your industry.

2. Check the 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:

1.Local County Registrar

Your local county registrar has a database of registered names that you cannot use. If you are planning on using a name different than the last names of the partners, you will need a fictitious business statement, also known as a “DBA.”

2. Secretary of State Offices

Many Secretary of State offices provide name-availability and name-reservation services. Some states allow you to check online, whereas others require you to submit a request to search for name availability by mail.

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 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.

3. United States Patent and Trademark Offices

Consider whether or not you will want federal and/or state trademark 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 Officeand your home state trademark and service mark database for conflicts.

4. Create a Partnership Agreement and file with the state

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. At the very least, your partnership agreement should detail 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, etc.

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; however, it is 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.

5. Get a Federal Taxpayer Identification Number (EIN)

Once your partnership has been organized, it’s recommended that you obtain a federal tax identification number (EIN) from the IRS. This EIN is a requirement for opening a business bank account for the partnership and hiring employees.

6. Register a Fictitious Business Name

If your partnership’s name is not the last names of the partners (i.e. as it appears on a government-issued document, such as a driver’s license or a passport), most states require you to 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.

7. Open a Partnership Bank Account

Once you have secured your EIN, you can open your new partnership bank account. Some banks may require not only your EIN, but also 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 and State Licenses

Obtain these 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.

While this can be a tedious step, it’s one of the most important, and online services like QuickBooks Licenses can help expedite and facilitate the process.

9. Maintain Other Regulatory and/or Tax Obligations

If your partnership plans on hiring employees, you will likely be subject to payroll withholding tax (on both the federal and state levels) and workers’ compensation insurance obligations. Check with the IRS, your state employment development department, division of workers’ compensation and other employment-taxing authorities to determine what your obligations are.

Finally, if your partnership will be selling or 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.

Contents of a partnership deed are as under :

Contents of Partnership Deeds

Although there is no specific format prescribed for drafting a partnership deed, a typical deed contains the below mentioned clauses.

1. The name of the firm
2. Name and details of all partners
3. Date of commencement of business
4. Duration of the firm’s existence
5. Capital contributed by each partner
6. Profit/loss sharing ratio
7. Interest on capital payable to partners
8. The extent of borrowings each partner can draw
9. Salary payable to partners, if any
10. The procedure of admission or retirement of a partner
11. The method used for calculating goodwill
12. Preparation of accounts of the firm
13. Mode of settlement of dues with a deceased partner’s executors
14. The procedure followed in case disputes arise between partners

Absence of a Partnership Deed

In case partners do not adopt a partnership deed, the following rules will apply:

1. The partners will share profits and losses equally.
2. Partners will not get a salary.
3. Interest on capital will not be payable.
4. Drawings will not be chargeable with interest.
5. Partners will get 6% p.a. interest on loans to the firm if they mutually agree.