A Comprehensive Guide on How to Form General Partnerships in All 50 States

One of the most important aspects of starting a business is choosing the best legal structure. The structure determines several things, including tax rates, administrative requirements, and personal liability protection.

According to the Internal Revenue Service (IRS), general partnerships are one of the most common business types. Two persons agree to share the business’s assets, profits, and liabilities after contributing money, labor, property, skills, etc.

Despite a drop of 4.7% in partnerships from 2018, this IRS report shows that there are 3.8 million of them in the U.S. General partnerships are easy to create and provide owners with tax benefits. However, they don’t offer personal asset protection because they aren’t separate business entities from their owners.

General partnerships are easy to form since the owners don’t need to register them with the state. In this article, read the pros and cons of a general partnership, making it easier to decide if it’s the correct entity for your business in any of the 50 states. Also, learn how to form one.

Understanding General Partnerships

There is no formation process for general partnerships because they are not formal business entities. You only need to choose one co-owner and can start selling goods or services, just like the owner of a sole proprietorship.

The legal regulations for operating a general partnership are few. For example, you pay no formation or incorporation fees and don’t file an annual report like a limited liability company (LLC) or corporation, meaning fewer maintenance requirements.

Furthermore, you don’t need to give your general partnership a dedicated name because it gets the partners’ names by default. In some states, you can register a doing business as (DBA), giving the business an assumed name.

Remember: General partnerships provide no personal asset protection, meaning the partners are 100% responsible for all business transactions.

Forming a Partnership in All 50 States

Incorporation Guru provides business formation information for startup owners and defines the process of forming General Partnerships in all 50 states.


1.      Select the Business Partner(s)

Unless you aim to become a sole proprietor, a general partnership requires you to choose your business partners.


2.      Decide on the Business Name

When deciding on your business name, you can use the partners’ full names or create a combination. However, you can create another name and register a DBA with your state if you prefer and the state allows it. Once you have a name, secure the business domain name using GoDaddy.


3.      Draw Up the Partnership Agreement

A partnership agreement is an internal document laying out some operational guidelines for the partners. It may not be a legal requirement, but it can help prevent future disputes among the partners. Remember to include information like the business purpose, financial contributions, profit and loss distributions, adding or removing partners, partner voting rights, and the business accounting system.


4.      Get the Business EIN

The employer identification number or EIN is the tax identification required by all businesses in the U.S. Your business needs this number to pay taxes, hire employees, open a business bank account, etc. You get the business EIN online from the IRS simply and for free.


5.      Open the Business Bank Account

Now that the business has an EIN, it qualifies to open a business bank account with any bank you choose. The bank will also ask for your partnership agreement and DBA if you have one.


6.      Obtain the Right Business Licenses and Permits

In some states, you need a general business license to conduct business. Some industries may also require federal, state, and local licensing due to their nature. Check with the relevant government agency to ensure your business is compliant by having the proper licenses and permits.

7.      Acquire Appropriate Business Insurance

For every business with employees, compensation insurance is compulsory in all states except Texas. However, even though not mandatory in Texas, coverage can help protect your employees and enterprise.  

Depending on your business activities, consider several types of insurance to protect it. General public liability is essential, especially in the retail trade where customers visit stores.

Benefits of a General Partnership

The benefits of a general partnership include its simple formation (no document filings and fees) and minimal maintenance requirements. In addition, unlike formal business entities, partnerships don’t need a registered agent’s services to receive official documents.


Disadvantages of a General Partnership

Unlike owners of LLCs and corporations, the owners of a general partnership have no personal asset protection, putting their personal assets at risk. In addition, you and your partners are 100% liable for all transactions and lawsuits.

In some states, businesses lack exclusive naming rights because they can’t file for a DBA. Furthermore, general partnership owners pay 15.3% self-employment tax in addition to their other tax responsibilities, and the business pays tax as a pass-through entity.


Bottom Line

General partnerships may offer fewer advantages than formal business structures, but figures from the IRS show that they remain popular thanks to having no legal or cost requirements. Unfortunately, the fact that they have no limited liability protection can prove problematic for its owners. 


Would you like to SEO or PR for your business? Contact us here for more information >>