Want to learn how to start a partnership business, but not sure how to go about it?
You have reached the right place.
Starting a partnership business is one of the most popular options among new entrepreneurs for many reasons:
- Partnerships are easy to form and run.
- You don’t have to pay double taxes.
- Profits and losses are shared among partners.
- Partners have a high level of control over the business.
However, many first-time entrepreneurs do not know the exact process of how to start a partnership business and the legal formalities involved.
That is where this post can help you. Keep reading to find all that you need to know about how to start a partnership business in the best way possible.
9 Easy Steps to Start a Partnership Business in the US
It is much easier to start a partnership business than to set up an LLC or a Corporation. However, it can still be a bit confusing for someone who is doing it for the first time.
Hiring the services of a professional company like GovDocFiling can help make the process easier and quicker for you. They can handle all the formalities and paperwork on your behalf and even expedite the process.
You can prepare lesson plans for your business to understand each step of your partnership business.
Still keen on learning how to start a partnership business from scratch?
Here is the step-by-step process that you can follow to start a partnership business.
1. Choose the Right Partners
The first step to start a partnership business is, of course, to find the right partners. Since the ownership of the firm is divided among partners, it is crucial to vet each partner and assess their credibility.
You don’t want to get into a partnership with anyone who has a criminal record, tons of debt, or anything else that may get your business in trouble.
Another important thing to consider is what each partner brings to the table. Are they particularly skilled at something that you need to run your business? Are they investing money to become a part of the business?
Every partner should bring something valuable to the table. Conduct a credit check and a general background check before you decide to start a partnership business with anyone.
2. Decide Partner Shares and Contributions
One thing that you should get out of the way right at the beginning of your partnership is each partner’s role and contribution.
Clearly discuss and define how much of the business each partner will own and what they will contribute. Shares need not be equally distributed among partners but can vary according to their individual contributions, seniority, and other factors.
Contributions can be monetary as well as in the form of work.
Some partners may choose to be actively involved in the day-to-day business, while others may want to be silent partners. Even among those who contribute there could be two types of partners:
- General partners who make day-to-day business decisions.
- Limited partners who contribute to business activities but don’t make decisions.
Some partners may get a salary as they work for the business, while others might just be equity partners who share profits and losses. Discuss all these aspects before you start a partnership business.
3. Define the Partnership Type
Adding to the previous point, you should also choose the type of partnership firm you want to start. There are three key types of partnerships:
- General Partnership – It is a kind of equal partnership where each partner is of the same type and has similar responsibilities.
- Limited Partnership – This type of partnership can have both general and limited partners.
- Limited Liability Partnership – This type of partnership business protects all partners from liability for other partners’ negligence.
Do your research and find out which of these suits your needs the best and go for it.
4. Select a Unique Name
The next step, after you have your partnership basics in order, is to choose a name for your partnership business.
Wondering how to do that?
First, find out the business name requirements in your state and whether you need to add the type of partnership in the name or not. Second, brainstorm on relevant names that can represent your business and make it stand out.
Next, you need to check whether the name you want to use is already being used by someone or not. If not, then you can go ahead and register it as your business name.
5. Register Your Partnership Business
The most important step on this list of tips on how to start a partnership business is actually registering your business with your state.
Depending on your state and type of business, requirements may differ. However, the process is still fairly straightforward.
For simple general partnerships, you simply need to register your business name and move to the next step.
6. Apply for a Tax ID
Before you can start running your business, you will need to apply for a tax ID or an employer identification number (EIN).
Even though your income will be taxed in your personal tax return, you will still need this for filing your Annual Return of Income.
In most states, you can simply fill an online application for that and that’s it.
7. Get Other Licences and Permits
Some types of businesses may require additional licenses and permits.
For example, some places require a local license even if the business is already registered with the state. You may also need a health permit, a building permit, an ATF permit, etc.
Find out the requirements for your specific business and obtain all necessary permits.
You will also need to register to file sales taxes and federal taxes. If you want a separate brand name, other than your registered business name, you will need to file for a DBA (doing business as).
8. Open a Business Bank Account
It is always a good idea to start a separate business account to keep your personal and business finances separate.
For a Sole Proprietorship, it may still be ok to keep the same account, but for a Partnership, you definitely need a separate account. This will help you manage your business transactions and finances better.
9. Set Up Accounting and Bookkeeping
If you start a partnership business without establishing accounting and bookkeeping operations, things can grow chaotic very quickly.
You need to organize and record all your business transactions, for your own sake more than others. As an added bonus, this will make your annual tax filings such as GST much easier and quicker.
Good employees are the assets of every organization so you need to develop an effective recruitment strategy to attract talent from the market. You can’t run your business without the help of employees so always hire the right talent and care about their talent to make your business smooth operational and profitable.
Hopefully, by now, you have learned how to start a partnership business in the US.
The process is fairly simple, but can still be a bit overwhelming for a first-timer. Simply follow the steps mentioned above and you should be fine.
Ready to start your partnership business?
All the best!