Looking to be the next Steve Jobs and Steve Wozniak? You’ll want to create a partnership.
When setting up a business as a professional, we’re generally able to choose between four different types of partnerships.
However, there’s more to the process than simply picking the type of partnership you want to create.
Understanding how to form a partnership is the first step in doing it correctly. Lucky for you, we’ve developed a comprehensive guide with everything you need to know.
What Exactly is a Partnership?
In simple terms: partnerships are businesses that have more or one owner.
According to the IRS, partnerships are the default kind of limited liability company (LLC).
This means that a partnership is formed when two or more people decide to formally do business together. However, they’ll still need to sign an LLC partnership agreement.
The Small Business Administration refers to partnerships as slightly less formal than corporations. This makes them a great option for small business owners who want to test the waters before expanding.
Once the business has grown to a certain point, experts recommend taking advantage of the power of a partnership.
The Logistics of Partnership Formation
Aside from the legal part of making your business a partnership, there are financial aspects to consider as well.
Tax policy is actually a huge part of how partnerships are formed and how they’re classified. Tax policy is also one of the biggest areas affected by the formation of a partnership.
Because this type of understanding is usually a job for financial professionals who have degrees in the right fields, we generally suggest that one of the partners is formally trained in
The UAB MACC program is a great way to ensure you or your partners have access to the right information when you need it.
How to Form a Partnership
The formation of partnership businesses is pretty straightforward.
You’ll want to follow these steps:
- Decide on who will register as partners
- Decide on which type of partnership makes the most sense
- Choose a name for the business
- Register the entity with your state
- Register for an Employer ID Number
- Create a partnership agreement
- Cross the I’s and dot the T’s (sign it all!)
After you’ve taken care of the paperwork, you’ll be able to enjoy some of the benefits of a partnership, which include the fact that:
- Businesses that are partnerships don’t have to pay income tax
- Each partner files their own profits or losses on their personal income tax
- It’s not that expensive to get the business registered
Growing into a Partnership
Now that you understand how to form a partnership, it’s crucial to take the next legal and financial steps to secure your investment.
Getting help from a qualified tax accountant is a great idea. Or, as we suggest, you can invest in yourself and your company by completing a MACC program yourself.
Check out our business plan template to get you started, and then head over to our limited liability corporation section for all of the necessary documents you’ll need.