Running a business with a partner can be great! Two heads are better than one, and you may even have skills in different areas that complement each other.
So, how do you get started with forming a partnership? Let’s go over what you need to know about the requirements and the process.
At CSI Accounting & Payroll, we’ve helped small businesses with their finances and structures for nearly 60 years. That means we’ve talked to thousands of prospective clients who have wanted to know:
- What are the technical requirements to form a partnership?
- Who should I work with to form a partnership?
- What are the steps to form a partnership?
Partnership Technical Requirements
What’s required to form a partnership?
Let’s start with the obvious. For most entities, you start by owning a business. However, it’s different for partnerships since many own real estate instead. (Plus, at CSI, we often recommend that partnerships that own businesses become S-Corps or LLCs taxed as S-Corps anyway. Here’s why.)
Then, you must have at least two owners who:
- Are adults.
- Can split profits and risks fairly.
- Can both play a major part in running the business.
Finally, you’ll need the proper documentation and registration that will be outlined later in this article.
Experts Who Can Help With Forming a Partnership
When you want to form a partnership, who do you need to call? We say an attorney and a monthly accountant.
Attorney
At the very least, an attorney is required. They’re required for the legal portions of forming a partnership.
You can also choose between an attorney or an accountant for other required actions, although our recommendation is that you have an accountant take over after the legal portions are covered.
Monthly Accountant
You may also work with a monthly accountant. As mentioned before, this is optional (but recommended).
Monthly accountants can do much more than just help you form a partnership and review your entity regularly to ensure it’s ideal for your business.
Once your business is running – meaning you’ve hired staff and are making sales – their standard offerings set you up for success moving forward. We’re talking year-round tax strategy to minimize what you owe, current insights to make informed business decisions, and so much more!
Learn what a monthly accountant can provide for your business all year long.
Key Steps to Form a Partnership
In the section above, we outlined how professionals can help you. However, there’s a certain order in which things should be done.
Step 1.) The Prerequisites
First of all, make sure you meet the requirements from the first section of this article. Remember, owning a business also means having all of the licenses and permits it requires.
Step 2.) Consult Your Accountant
While not required, you may want to call your accountant to see if they recommend moving forward with a partnership or a different entity.
If they tell you to stick with a partnership, it’s time to contact your attorney and continue these steps. (Don’t have an attorney? Most business accountants will have a trusted partner to refer you to.)
Step 3.) Work With an Attorney
An attorney is required to:
- Write up the partnership agreement. This is the first step. Nothing will move forward until you and your partner have signed the final draft.
- Legally form the partnership. Your attorney will file the necessary paperwork. For example, this could include registering a DBA name.
Then, an attorney (or a monthly accountant) must:
- Obtain an EIN. They can help you apply for your federal Employer Identification Number.
- Register with the Secretary of State. They can help you register with the Secretary of State. This needs to be done annually.
- Apply for a state ID number. This is necessary if you collect sales tax, but sometimes it’s necessary even if you don’t. Check with your attorney to be sure!
Step 4.) Work With a Monthly Accountant
As mentioned above, a monthly accountant can:
- Obtain an EIN.
- Register with the Secretary of State. Since this needs to be done annually, it can be beneficial to partner with a monthly accountant who works with you all year long.
- Apply for a state ID number. An accountant is typically the ideal expert for helping with tax registrations.
Then, moving forward, they can:
- Handle monthly bookkeeping & account reconciliation. This ensures accuracy over time and keeps your books in tip-top shape.
- Prepare monthly financial statements. This gives you current insights that can help you make informed decisions.
- Offer proactive monthly advice, plus extra communication as needed. Get advice in monthly meetings, call them with one-off questions as much as you like, or add on a consulting project.
- Provide audit representation. Feel confident in your books, knowing that you’re represented in the case of an audit.
- Conduct a complete tax strategy, preparation, & filing. This is the only way to legally minimize what you owe in taxes. Annual tax preparers can’t do this since they don’t work with you year-round!
Get Future Success for Your Partnership!
Now that you know about the technical requirements to form a partnership, which experts to work with, and the steps to form a partnership and set yourself up for future success, are you ready to check out monthly accounting services?
If so, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:
Not ready to talk? That’s okay! First, learn more about what it’s like to work with us by clicking the image below:
