A general partnership in the state of California is the collective entity that is formed when two or more individuals and/or entities engage in a trade or business.
The intent of all shared activities is to share profits as well as losses. A general partnership can be created without the parties expressly declaring that they are creating a general partnership.
General Partnership v Sole Proprietorship
A General Partnership in the state of California is one of the most common arrangements of business ownership, similar to a sole proprietorship. One difference a general partnership and a sole proprietorship is the sole proprietorship refers to a single individual who is the one responsible for the business. Any decisions related to the business are thereby made by this individual.
A general partnership, on the other hand, involves at least two individuals and/or entities who are owners of the business. This cooperative group of individuals and/or entities share the responsibility for the business and make the decisions for the business together. When working together, these individuals and/or entities share both the profits as well as the losses for the business. They can also contribute any financial resources and can share the obligation to complete tasks that are for the sole beneficiary of the business.
Creating a General Partnership
There are no formal filing or registration requirements needed to create a partnership, however, partnerships must comply with registration, filing, and tax requirements applicable to any business. There are also some steps every partnership should take to make sure they follow sound business practices when starting a new venture:
The following are some steps to take when forming a general partnership in California: Choose a business name.
1- Choose a partnership name.
2- Prepare and sign a Partnership Agreement.
3- Obtain the requisite licenses, permits, and zoning clearances applicable to your particular venture.
4- Obtain an Employer Identification Number from the Internal Revenue Service.
Choose a Partnership Name
In California, a partnership may use the surnames of the individual partners or may use a fictitious business name. If a fictitious business name is to be used, a fictitious business name statement must be filed with the County Clerk. Further, if you plan to use a fictitious business name, it must be distinguishable from the name of any other company currently on record. It is good practice to choose a name that is not too similar to another registered business because due to common law and federal trademark law protections. To make sure your desired business name is available, run a search in the California Secretary of State Business Search portal, which is available at the following link:
A partnership agreement is not a mandatory legal requirement for establishing a partnership. However, it is a very important step to ensure there are no misunderstandings between the partners and to outline how the partnership will be governed. A well-drafted partnership agreement will help you decide in advance how to handle certain situations. The following is a list of just some things that should be in a partnership agreement:
- Partner contributions
- Allocation of how profits, losses, and draws will be handled
- Management authority for the partnership
- Voting rules
- Admitting new partners
- Voting and decision-making
- Sale of partnership interests
- How to handle death or disability of a partner
- How to resolve disputes.
Even well intentioned, honest partners can find themselves in a legal battle if they do not have a written partnership agreement memorializing their initial purposes. A partnership agreement can always be amended at a later date if circumstances or conditions change. For help creating your partnership agreement, contact an experienced business attorney.
Obtain Requisite Licenses, Permits, and Zoning Clearance
Depending on the type of business a partnership will engage in, it may need to obtain business or professional licenses. Additionally, local regulations, including licenses, building permits, and zoning clearances, may apply to a partnership’s business.
Obtain an Employer Identification Number
Will your partnership have employees? If so, the partnership will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This is a nine-digit number issued by the IRS to keep track of businesses. All businesses with employees are required to report wages to the IRS using their EIN. In California, businesses are required to report taxes and file various employee reports. You may need to use your EIN when registering your business to report taxes through the California Board of Equalization.
General Partnership Attorney
If you need legal assistance with a partnership dispute or with forming a California general partnership, Real Estate Law Corporation has highly experienced attorneys that serve business owners and real estate investors in the greater Sacramento area and all over California. To schedule a free consultation with one of our attorneys, simply call us at (916) 767-0000, or use the contact form below.