Starting a General Partnership in the U.S: A Step By Step Guide

According to the United States Census Bureau, in July 2021 alone, more than 454,460 new business applications were filed in the US. Completing and filing a business application may seem intimidating, but has proven to be simple for certain business entities. Besides a sole proprietorship, a general partnership is one of the simplest business entities possible to create. General partnerships, which requires two or more partners, sees the partners share ownership and liability for debts and liabilities within the business. To successfully form a general partnership, entrepreneurs need to understand the general partnership setup and which processes to follow. For entrepreneurs looking for more information about this process, Incorporation Rocket is able to offer more information here.  

Defining a General Partnership

To form a general partnership (GP), two or more individuals will share all of the assets, profits and liabilities related to a business. The partners have to agree to unlimited liability, which means that if the business experiences any legal or financial issues, the partners’ personal assets are all equally at risk to make good on the business’s debts or obligations. The partners also have to manage day-to-day operations of the business while all having an equal say in the decisions made. A written partnership agreement is important and beneficial to have in a GP because it will establish official limits and prevent confusion about roles and power in the business. 

Starting a GP

  1. Articles of association

The articles of association is a form of statute that GPs need. Unlike other legal documents, the structure and format of the articles of association does not need to follow any legal regulations. To prevent any future confusion or possible disputes, the articles of association should include these points:

  • The company name 
  • A registered office
  • The business’ purpose 
  • Names and addresses of the partners
  • Deposits made
  • Type of management 
  • Distribution of profits and losses amongst partners
  • Resolutions on the termination and continuation of the company in the event of a partner quitting or dying 

GPs will need to be notarized if real estate is used as initial capital from one of the partners. It is also advised to consult a legal advisor during the process of drawing up the articles of association. Once this has been signed by partners, the GP will be regarded as a partnership under civil law. The business would become effective as a GP once it begins to trade and has been registered with the local Secretary of State.

  1. Register with the Secretary of State

Before GPs are allowed to trade, they are required to register with their local Secretary of State. Not all states formally require this, but it might still be necessary if GP has to obtain business licenses and fictitious name certificates. The forms to do so usually asks for the following information:

  • The name and address of each partner
  • The company name and registered office address
  • Contact information for the business’s registered agent

Once the partners have received the relevant certifications and confirmations of fee payments, the business will legally be a GP ready for business. 

  1. Register for state trade licenses

The business may need to register for a state trade license, depending on what kind of business it is. The registration and licensing agreements differ across states, and to find out what a specific state requires, partners can visit the Small Business Association’s website.

  1. Obtain an Employer Identification Number

If the partnership decides to employ employees, they would need to obtain an Employee Identification Number (EIN). This allows the partners to pay employees and pay business taxes. Obtaining an EIN can be done from the IRS. 

  1. Create a business bank account 

Once an EIN has been obtained, the partnership will be able to open a bank account for the business. This would only be possible at this point because most banks require the business’ EIN. Banks may also request copies of the DBA and partnership agreement.

GP formation costs

GPs are known to have low costs. This type of partnership requires no minimum capital contributions from partners and no formal partnership agreement is usually necessary. This prevents any legal fees being required during partnership formation. But it is advised to have a partnership agreement to be formally compiled by a legal professional to ensure the protection of the partners’ interests. This legal fee would be a once-off fee and would be between $500 and $2000. This price’s range would depend on the length and depth of the agreement, the area costs and the lawyer’s rates. There would also be additional fees for filing with the Secretary of State, and for obtaining business and trading licenses. These all depend on the state’s fees and requirements.

The bottom line 

Seeing that GPs are easy to form, many business owners see it as an attractive business structure. For business owners comfortable to carry unlimited liability, a partnership is the perfect choice as a business structure. Seeing that business owners carry unlimited liability, they should ensure that the legal documents are in order before forming the partnership. One of these would be the general partnership agreement. The advice of a legal representative or lawyer would be beneficial for business owners to ensure that it is drawn up and filed correctly.