A business partnership is a legal relationship formed between two or more people to operate a business and share its profits. It can be a great option for entrepreneurs looking to pool resources and expertise. In California, partnerships are popular due to their flexibility, but it’s important to understand the legal steps involved to ensure everything is set up correctly. There are three main types of partnerships:
General Partnership (GP): All partners share responsibility and liability for the business.
Limited Partnership (LP): Includes both general and limited partners, where limited partners have reduced liability.
Limited Liability Partnership (LLP): Offers liability protection for all partners, commonly used by professionals like attorneys and accountants.
Steps to Forming a Business Partnership
To legally run a partnership in California you must follow these steps to make sure everything is compliant and in order:
1. Choose a Business/Partnership Name: First choose a unique name for your partnership. Make sure it’s your brand and not already in use by another business. You can check name availability on the California Secretary of State’s website.
2. Register the Business Name: If your partnership is operating under a name different from the partners’ legal names (a “Doing Business As” or DBA), you’ll need to file a Fictitious Business Name Statement with your county clerk. This step secures the name for you and makes sure you’re in compliance with local regulations.
3. Draft and Sign a Partnership Agreement: While not required for general partnerships, creating a partnership agreement is highly recommended. This document outlines each partner’s responsibilities, profit sharing, decision making and dispute resolution procedures and how to dissolve the business. It prevents misunderstandings and provides a legal framework for your business.
4. Complete the Required Paperwork: Depending on the type of partnership you’ve chosen, different forms need to be filed with the state. For LPs and LLPs you’ll need to file registration paperwork with the California Secretary of State. Each form has a filing fee so make sure to get this done correctly to avoid delays in your business.
5. Apply for Licenses, Permits, and Zoning Clearance: Every business in California must comply with local regulations which means getting certain licenses and permits. Depending on your industry and location you may need health permits, environmental permits or industry specific licenses. Check with local and state authorities to make sure you’re meeting all the requirements.
6. Get an EIN, Register for State Taxes: An Employer Identification Number (EIN) from the IRS is required for tax purposes even if you don’t plan on hiring employees. California requires businesses to register for state taxes such as sales tax (if applicable) and payroll taxes for employees. Getting an EIN is easy on the IRS website and state tax registration is on the California Department of Tax and Fee Administration website.
Other Necessary Steps for Your Partnership in California
Once your partnership is legally formed, there are a few more steps to get fully operational:
Open a Business Bank Account: Keep your business and personal finances separate by opening a dedicated bank account for the partnership. This is crucial for tracking income and expenses and protecting personal assets.
Obtain General Liability Insurance: Protect your business from potential lawsuits and liabilities by purchasing insurance. Depending on your industry, you might need additional types of insurance, such as professional liability or workers’ compensation.
Taxes: Partnerships are pass-through entities, meaning the business itself doesn’t pay income taxes. Instead, each partner reports their share of the business’s profits or losses on their personal tax returns.
Getting Help With Forming Your Partnership
Forming a business partnership in California involves multiple steps that can feel overwhelming, especially if you’re new to the process. At Stone & Sallus, we specialize in helping entrepreneurs like you navigate the legal complexities of partnership formation. Our team can assist with drafting your partnership agreement, disputes, handling state filings, and ensuring compliance with all legal requirements.
Contact us today to schedule a consultation and let us guide you through the process so you can focus on growing your business.
