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How to Form a Partnership in California

A partnership is created when at least two people or entities agree to do business together for profit. Partnerships are among the most common arrangements of business ownership in California. If you are considering a partnership, you will need to decide the type of partnership to form. There are three types of partnerships in California. They are general partnerships, limited partnerships, and limited liability partnerships. All have their advantages and disadvantages, and it is crucial that before you decide which type of partnership to form, you consider all the pros and cons of all types of partnerships.

A general partnership consists of at least two general partners who equally share the ability to control and manage the business. A limited partnership comprises at least one general partner and at least one limited partner. The general partners in limited partnerships have the same rights and responsibilities as those in general partnerships, but limited partners are simply investors. Lastly, partners are provided with liability protection in a limited liability partnership.

After deciding which type of partnership to form, certain steps must be taken before the partnership can legally operate in California. The following are some of the steps you need to follow to form a partnership in California:

Step #1: Choose a Business Name

The first step to forming any form of partnership in California is choosing a name for your business. You can choose to use a fictitious name or the partners' surnames. If your business is not going to be operated as a general partnership, you should include the appropriate designation within the business name (i.e., LP or LLP).

Step #2: Register the Business Name

If you choose to use a fictitious business name, you will need to file a Fictitious Business Name Statement in the county clerk's office in the area where you plan to conduct business.

Although it is not a legal requirement, it can be a good idea to consider registering your business name as a federal or state trademark.

Step #3: Create and Sign a Partnership Agreement

It may not be mandatory to create and sign a partnership agreement, but it is a good idea that you do so. A partnership agreement can ensure there are no disagreements between partners. A well-written agreement can help you and your partners know how to handle certain issues.

Step #4: Complete the Required Paperwork

If yours is a limited partnership, you are required to file a Certificate of Limited Partnership with the secretary of State. And if yours is a limited liability partnership, you need to file an Application to Register a Limited Liability Partnership. You also need to maintain insurance or file an LLP-3.

Step #5: Obtain Any Required Local Licenses

Depending on the type of activity you will be engaging in, you may need to obtain business or professional licenses. You can check with your city and county governments for more information.

Step #6: Determine if You Need an Employer Identification Number or Tax IDs

If your partnership wishes to have employees, you will need an Employer Identification Number (EIN). The IRS provides businesses with this number. Also, depending on your business, taxes may be required.

Contact a Business Attorney Serving Santa Clara and Silicon Valley

If you are considering forming a partnership and need professional legal guidance, contact the experienced business attorneys at SAC Attorneys LLP.

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