How Partnerships Get Started
A partnership can mean many things. The term may be used loosely for individuals planning a project together or who work closely within an existing business. However, a partnership can also be a formal business entity. A binding partnership agreement can be entered into by two or more people, corporations, or limited liability companies that wish to conduct business together. Each partner shares equally in the profits and is both jointly and independently responsible for the business’s liabilities. If you are considering entering into a partnership with another person or business, you should consider the legal and tax ramifications before signing an agreement and contact experienced West Palm Beach business litigation attorney Larry E. Bray.
Creating a General Partnership in Florida
Forming a general partnership is relatively easy and has fewer formalities than creating a corporation or LLC. If you and one or more individuals decide to form a partnership, the most important aspect is the legal agreement you negotiate, draft, and sign. Each of the prospective partners should have his or her own attorney during the formation process. The partnership agreement can define:
- Each partner’s role in the business;
- Each partner’s decision-making authority and management responsibilities;
- How to resolve disputes;
- Voting rules for the partnership;
- Each partner’s investment in the business, including money or property;
- The allocation of profits and losses to each partner;
- When and how new partners will be admitted to the business;
- How to handle insolvency or bankruptcy;
- How each partner may be able to exit the business; and
- What to do in the event of a partner’s death, incompetence, or incapacitation.
You and your partners should determine a business name for your partnership and file a trade name before the start date of the business. You can file your trade name with the Florida Department of State along with a filing fee. Next, you must obtain an employer identification number from the U.S. Internal Revenue Service for tax purposes. The IRS requires partnerships have an EIN whether or not they employ any workers.
Additional Steps in Forming a Partnership
Once you have your trade name, EIN, and signed partnership agreement, you may be ready to open for business. However, there are other steps you and your partners should take prior to jumping in, such as:
- Finding a business location and entering into a commercial lease;
- Obtaining business liability insurance;
- Opening an appropriate business bank account;
- Work with an accountant to determine how best to organize your books in order to; properly report all necessary state and federal taxes; and
- Obtain any necessary licenses or permits to operate your business.
The Tax Consequences of a Partnership
A partnership does not pay its own income tax. Instead, all of the profits and losses of the business pass through to the individual partners. Each partner is responsible for the income tax liability based on the business’s income as well as self-employment tax.
The partnership is generally responsible for annual return of income, employment taxes like Social Security, and excise taxes.
Contact a West Palm Beach Business Lawyer for Help
If you want to create a formal partnership agreement with another individual or business, it is important that you plan ahead and have access to sound legal advice. If you enter into a contract that you did not carefully review or negotiate for your own interests, you could run into serious legal disputes down the road or find yourself pushed out of a business you helped created. To ensure you head into a new partnership the right way, contact the Law Offices of Larry E. Bray, P.A. in West Palm Beach at 561-571-8970 to schedule a consultation.