No intent or legal formalities are needed to create a general partnership. It just happens as soon as you begin a business with someone else.
While you may need a license to operate a particular business and to register a fictitious name, there is no law that you have to follow to create a partnership.
How to Create a Sole Proprietorship
A sole proprietorship is created the same way a partnership is created; you just start a business, but you are the only owner. A partnership involves two or more people (or business entities.)
Like a partnership, there is no required written agreement and you file your taxes on your own 1040. There are no required meetings, minutes, elections, or other formalities.
Why You Don’t Want a Partnership or Sole Proprietorship
Many folks have a partnership or sole proprietorship out of default. They are do-it-yourselfers who like the ease of set up and operation.
These business folks likely think their liabilities are covered with business insurance or if they work at home, by their homeowner’s insurance.
They are wrong.
- Business insurances have exclusions and only protect up to the coverage limits.
- Homeowner’s insurances don’t cover business matter such as the Fed Ex guy falling on the ice, while delivering a package for your business.
- Your personal and business assets can be seized if you are sued because the general partnership and sole proprietorship offer zero asset protection.
Alternatives to a General Partnership
The limited liability company (LLC) is a common alternative to the partnership or sole proprietorship, although there are others such as limited liability partnerships and corporations.
Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.