A general partnership (also known as simply a partnership) forms when two – or more – people decide to do business together to gain profit. While you do not have to do a formal filing or draw up a written agreement to establish a partnership in California, there are registration, filing, and tax requirements every business must comply with.
Fortunately, establishing a general partnership in the state of California is a simple five step process. Follow my five-step guide and you’ll have your partnership established in no time.
If you find the steps below to be a little unclear, please send me an email at email@example.com and I’ll break it down for you.
1. Establish Your Partnership Name
In the state of California, you have two options when it comes to your partnership name. You can operate on the surnames of your partners or you can create a fictitious business name.
If you decide to do the second option, your name needs to be different from other company names currently on record in the state of California. Ideally, you want to make sure your name isn’t too much like other existing business names.
This is for your protection from common law and trademark law. Just run your name idea through the following databases:
2. Fictitious Business Name
If you decide to go with a fictitious business name, you must file the business name with the office of the county clerk where you plan to operate.
With the help of the California State Association of Counties you can find a list of country websites that provide you with the forms and information you need to file.
You will have to pay a filing fee of $26. And, you will be required to publish your fictitious business name in the local county newspaper for at least four weeks.
As an experienced business attorney, you can contact me at firstname.lastname@example.org if you find any of the paperwork to file confusing, I’d be happy to help.
3. Partnership Agreement
Technically, a partnership agreement is not mandatory nor is it required by the state of California to establish a partnership.
So, I know what you are probably thinking: Why am I telling you to establish a partnership agreement if you aren’t required to?
Because not establishing one would be a mistake.
A partnership agreement is an important step is making sure you and whoever you go into business with do not have any disagreements.
I highly encourage getting legal help – such as myself – with drawing up a well-drafted agreement to help figure out how to handle some situations before they happen.
Here’s some things you really should confirm in a partnership agreement:
- Each partner’s responsibilities
- Profit, loss, and draw allocation
- Authority and management duties
- Rules for voting
- How to bring in additional partners
- What happens if a partner quits or passes away
- Dispute resolution plans
You can go into a partnership with your best friend and have the best intentions, and still end up in a legal battle if there was never an agreement established.
Fortunately, a partnership agreement isn’t set in stone. You can always amend it later.
4. Get Licenses, Permits, and Zoning Clearance
Depending on what type of business you and your partners are going into, you need to get the right licenses, permits, and zoning clearance to set up shop in the state of California.
California makes this a simple process thanks to their database called CalGold that offers a list of every profession that requires a license.
5. Get EIN
If you plan on having a partnership that hires employees, you will need aa Employer Identification Number (EIN). Your EIN is simply a nine-digit number the IRS uses to track businesses.
You can use the EIN to report wages to the IRS.
Even if you decide not to hire employees, an EIN is still a very good idea. Some banks require you to have one in order to open a bank account.
Businesses have to file taxes and other employee reports in the state of California. An EIN not only makes this process easier, but it some cases is required.
Additional Steps to Take
While these are not technically part of my five-step process for establishing a general partnership in California, these are still important attentional steps to take.
- Use your partnership name – and EIN – to set up a bank account. This puts a separation between personal and business funds.
- Protect yourself by obtaining personal liability insurance. Remember, that you are liable for anything your partner does and vice versa.
- Report and pay all business taxes
As you can see, forming a general partnership in the state of California is a pretty simple process.
What To Do Next
While the requirements vary, it’s a pretty simple process in any state. Contact me at email@example.com if you need help forming your partnership today.