What are the formalities for a partnership agreement?

According to the Internal Revenue Service, a partnership is any organization that is not co-owned by two or more people who carry out an activity, trade, financial transaction or venture and divide profits. Your partnership should register with the secretary of state in which it operates, agree a partnership name and obtain an employer identification number from the IRS. Although not required, it is also advisable to draft a formal partnership agreement.

Draw up a partnership agreement

Technically, a partnership can be formed orally and should not be written. To avoid misunderstandings, however, it is better to create a written partnership agreement. Rocket Lawyer suggests that you and your partners consider and address the following topics of the agreement:

Ownership percentages: How much of the partnership owns each partner? This can be determined by the amount of capital that each partner contributes, the amount of work that each partner plans to perform or another measure.

Transfer of ownership: Can the partners transfer the partnership shares to spouses or children? What happens to the shares if a partner dies?

Duration of partnership: By law, partnerships automatically cease if an owner dies or sells all his shares. But it is possible to add a provision that allows other partners to repurchase shares and continue the existence of the partnership.

Partnership management: What role will each partner play in managing the company? Not all partners must have a partnership role.

Choose a trade name

The Small Business Administration of the United States notes that the legal name of your partnership is the surname of all your partners, unless you choose otherwise. For example, if your name is John Smith and your partner is called Jane Doe, your partnership name is Smith and Doe.

Alternatively, you can choose a fictitious name for your partnership. We talk about "Doing Business As" or a DBA. When choosing a DBA for your partnership, do not use words that can mislead a customer about the nature of your business. For example, you cannot terminate your DBA with "Inc." because you are not a company.

Register your partnership

To conduct business, you must register your partnership with your state, the secretary of state. This involves filling out a form with information on the partnership - including any DBA name - and paying a filing fee. Depending on where you are, you may have to pay a local business tax or purchase permits and licenses to do business. Contact your state secretary for more information.

Get an employer identification number

The IRS requires partnerships to obtain an employer identification number. You can request the number online, by fax, by post or by telephone. You will need this number to identify the partnership when submitting the partnership's annual tax return.

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Created on Nov 13th 2019 13:41. Viewed 320 times.

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