Step By Step Guide on How to Form a General Partnership.
|Prepared By: Melissa C. Marsh, Los Angeles Business Attorney
Written: March 2009
This article seeks to provide a step by step guide on how to properly form a general partnership in the State of California. I say, properly because in the State of California a partnership is formed automatically when two or more individuals orally agree to operate a business jointly, or engage in a mutual business endeavor. This is extremely important because partners are each jointly and severally liable for the acts and omissions of the other partner(s) even if they have no knowledge of what the other partner did, and even if they flatly prohibited a partner from committing some act on behalf of the partnership. For these reasons, and others, the most important step is the preparation of a well drafted partnership agreement that clearly sets forth all of the rights, responsibilities, and expectations of the parties.
Step 1. Choose A Business Name For The Partnership.
Step 2. Make Sure the Name You Have Selected for the Partnership is available.
To ensure the name you have selected is available, you need to first perform a search at the local level by searching your local county's registrar of fictitious business names. If the name is available at the local level, then you will need to perform a search of the recorded corporation and limited liability names maintained by the California Secretary of State. If the name you have selected appears to be taken at the state level that does not mean the name is unavailable. You need to dig deeper and find out what that business does. If the business is in a completely different industry than the one contemplated by your partnership, then you can still use the name. If the business is in the same industry as yours, you are better off trying to find another name.
Assuming you have found a name that is available at both the local and state level, you are free to use it unless your partnership name will also be branded as a trademark or service mark. If that is the case, then you will need to make sure your name will not infringe upon a trademark or service mark belonging to another individual or company. To do this you will need to have a search performed at the United States Patent and Trademark Office and of California's register of trademarks and Service marks. As a general rule, you should avoid using any name that is the same as, or similar to, the one you are proposing to use if the name is being used by someone in a similar field of business as yours, e.g. computer related services would include any kind of computer service such as design, repair, software engineering, etc...
Step 3. Draft and Sign a Well Written Partnership Agreement.
Although not legally required, we strongly recommend that you and your partners sign a partnership agreement that sets forth all of the rights and responsibilities of the partners, provides a mechanism for each of the partners to withdraw or resign, and if things go well provides a measured goal at which point the partnership will either incorporate or form a limited liability company. For more details, please see, Why a well written partnership agreement is essential?.
Step 4. File a Statement of General Partnership with the California Secretary of State.
This is optional, but to file the Statement of General Partnership you must submit the $70 filing fee and $15 over the counter fee.
Step 5. Get a Federal Taxpayer Identification Number (EIN) to open a bank account.
Please see, How To Get A Federal Taxpayer Identification Number for details on how to complete IRS Form SS-4.
Step 6. Register The Partnership Name At The Local Level By Getting a Fictitious Business Name.
If you will be operating your partnership under a name that is different from your given legal name (e.g. the name that appears on your driver's license), you are required to search, file and publish a Fictitious Business Name Statement in the local county where the partnership will have its primary office. See, How To Get A Fictitious Business Name.
Although not required, you should also consider registering your business name as a state trademark (if you will only be engaged in business within the state of California) and at the federal level if you will be engaged in business in two or more states. Please see the Trademark for Business Naming section for details.
Step 7. Open a Bank Account.
Now that you have an EIN, you can establish a separate bank account for your partnership. You should try to keep your personal finances separate from your business' finances. If you need to loan money to the partnership you should have a promissory note prepared and acknowledging the terms of the loan.
Step 8. Obtain a local city business license and any other special licenses or permits required by your business.
Step 9. Obtain a seller's permit if the Partnership will be selling any taxable goods.
Please see our article on How to Obtain a California Seller's Permit.
Step 10. If you will be Hiring Employees, Register with the California Employment Development Department.
Your partnership may need to register with the California Employment Development Department. You will need to register if the partnership will be hiring an employee (who is not a partner) and paying that employee $100 or more in a quarter. To set up a payroll account with the EDD, the partnership should prepare and file Form DE-1. Once that is done, the [partnership should consider hiring a payroll service like Paychex or ADP.
For more information on being an employer, including tax information, see our Employment Law Section.
Whenever you hire an employee in California, you must inform both the IRS and the State of California. The IRS details all of the necessary steps, including verifying work eligibility and withholding allowances certificates, on its web site. See Hiring Employees. Under California's new hire program you are required to complete Form DE-1 for every new hire and Form DE-542 for every independent contractor you hire.
If you have any employees in California, you must also carry workers' compensation insurance. See, California's Division of Workers' Compensation for more information.
If you would like Melissa Marsh to prepare a well written partnership agreement, or to assist you with the formation of a California general partnership, please call 818-849-5206. If, on the other hand you would like to discuss what business entity (corporation, limited liability company, partnership, or sole proprietorship) will best suit your needs, please schedule a low cost 30 minute telephone consultation.
Ms. Marsh provides various low cost In House Counsel Plans
designed specifically for the small business owner, and if you just have a few simple questions she provides a Telephone Consultation
for as little as $85.
California business lawyer, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and serves individuals and businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.
© 2009 Melissa C. Marsh. All Rights Reserved.