How to Set Up a Business Partnership

Forming a business partnership has many advantages. It can help ensure you have additional capital and can access a broad scope of expertise for your company. Going into business with another person can also offer you more opportunities and support. If you are considering conducting business with one or more people, it’s essential to understand how to set up a business partnership.

What is a Business Partnership?

A partnership is a business structure that is formed when at least two people agree to do business with one another for profit. While they require very little paperwork, partnerships are relatively easy to create and less costly than other types of business formations. There are three types of business partnerships in California, including the following:

• General partnerships — These types of business partnerships consist of at least two general partners who both share the ability to manage and control the business.
• Limited partnerships — A limited partnership is comprised of at least one general partner and one or more limited partners, who are investors.
• Limited liability partnerships — This type of partnership provides liability protection to the partners.

Entering into a business partnership can make day-to-day operations much more manageable than they would be in a sole proprietorship or as a single person LLC. However, each type of partnership has advantages and disadvantages. It’s essential to carefully consider the pros and cons associated with each — and assess which will best meet your objectives.

What are the Steps to Set Up a Business Partnership?

Although there is no requirement to file formation paperwork to set up a business partnership in California, there are still a number of steps that must be taken. First, you must choose your partners for the business. While this is an important decision, you can also add or remove partners at a later time. After you have selected your business partners, the ownership percentage of each partner must be established. This determines how much money each partner will put into the business and the capital distributions each partner will receive.

The next steps associated with setting up a business partnership include the following:

• Choose a name for the business — You will need to choose a name the business will use to operate. If you wish to operate under a different name for the purposes of branding, you may need a DBA (which stands for “doing business as”) to open your business bank account.
• Register the name for the business — After you have chosen a name for your business, it will need to be registered with the Secretary of State. However, if you’d like to register a DBA, you will need to file with the county in which your business is operating.
• Create a partnership agreement — A partnership agreement establishes rules for how the partnership will be run, how profits will be divided, and what responsibilities each partner has. They also outline the rules for resolving disputes, voting processes, and rules for changing ownership. Although partnership agreements do not need to be filed with the Secretary of State, they are a binding contract between the partners.
• File with the Secretary of State — Depending on the type of business partnership, you may be required to file paperwork with the Secretary of State. For instance, a Certificate of Limited Partnership must be filed for a limited partnership and an application to Register is required for a limited liability partnership in certain states.
• Obtain the necessary licenses to run your business — Based on the industry and location where you operate, you may need a license or permit for your business.
• Get an Employer Identification Number (EIN) — A business partnership in California will need to obtain an EIN from the IRS if it has employees. Typically, banks require an EIN before opening a business bank account.

Once you have taken the steps to set up a business partnership, you will need to open a business bank account. Even though a general partnership is not required to have a business bank account by law, this can keep your business and personal assets separate, as well as make it easier to track the company’s income.

What Should You Do After Your Business Partnership is Set Up?

A business partnership should be always evolving. Once your business partnership has been set up, it’s vital to hold regular meetings. Partners should meet periodically to review their responsibilities, discuss their concerns, change their goals, and talk about plans to grow the business.

In addition, as a business expands, it may become necessary to review the partnership agreement from time to time. You may want to readdress some of the provisions in the document, add partners, or expand operations. While these matters may be included in the original agreement, it might be best to address them specifically when they arise.

Contact an Experienced California Business Partnership Attorney

If you are interested in setting up a business partnership, a knowledgeable business attorney can help you navigate the process. At White and Bright, LLP, we work with business owners, start-ups, and entrepreneurs in California for a broad scope of business formation and litigation matters. We welcome you to contact or call us at (760) 747-3200 to learn more about our legal services.