How to Start a General Partnership
Did you know that 99.9% of all businesses in the United States are small businesses?
While there are millions of small businesses across the country, there are a few different corporate structures you can use. Each structure comes with its own advantages and disadvantages to consider when starting your new business.
A general partnership is one of the most popular options for startups. With the help of an experienced business partner, you could get your business off the ground in no time. This is why it's important to understand how to start a general partnership.
Want to learn more about starting a general partnership? Read on for more information on how to start a general partnership business.
What Is a General Partnership?
A general partnership is an unregistered business that has more than one owner. In most cases, partnerships can be defined as businesses with two or more different co-owners. Partnerships tend to divide duties and responsibilities amongst each other, making it a more hands-on business compared to limited liability companies.
Owners share unlimited liability in partnerships. It essentially operates like a sole proprietorship but is shared among the partners. The sharing of costs, liabilities, and responsibilities can help make the entire process easier for everyone involved.
From raising funds to managing tasks, having partners around you can help get the business off the ground in a fraction of the time.
Benefits of a Business Partnership
If you're thinking about starting a business partnership, there are a few key benefits you should know about. Here's a quick look at these benefits.
1. Dedicated Business Partner
Starting a business is a challenge. This is why starting a business with an experienced business partner can help share the workload. Sharing the work can help you achieve more in a shorter space of time, growing your business in the process.
2. Shared Start-Up Costs
In addition to sharing the work, you can also share the costs. Whether you want to use your own capital or apply for a loan, having a partner can increase your financing opportunities.
3. Access to Profits
As a partnership, the finances can be easily accessible to the partners. This means that profits can be passed through to each partner. In this way, you may not have to pay corporation tax but rather pay individual tax on the profit you collect.
Disadvantages of General Partnerships
While there are major benefits to starting a business partnership, there are also a few disadvantages to note as well. Just as the profits are shared, so are the liabilities. This means that debts should be paid by the partners if the business fails.
Partnerships can also get complicated over time. From dividing assets to making decisions about the business, it's important to have responsibilities set in advance. This is why a solid partnership agreement is always the best place to start.
How To Start a General Partnership
As mentioned above, a general partnership comes with a ton of benefits for new businesses. Read on for our guide on how to start a general partnership.
Step 1: Choose a Name
The first thing you should do when starting a partnership is to come up with a unique name. This is a vital part of setting up your business as it can help create an official identity. Once you find a name you like, you should register it with your local authority to help prevent others from using it.
Step 2: Create a Partnership Agreement
Creating a partnership agreement should be done before your business launches. This agreement should outline the roles and responsibilities of every partner to help avoid conflict in the future. This agreement can also describe the nature of your business and a few ambitions for how it should adapt in the future.
Step 3: Apply for an Employer Identification Number
Applying for an Employer Identification Number (EIN) can help you manage your business. This number can be used to open bank accounts, apply for credit cards, and even secure business loans for your partnership. Once you have this identification number, you can apply for the necessary permits you may need to launch your business.
Step 4: Open a Bank Account
An Employer Identification Number can help you apply for a bank account that's separate from your personal account. This is an important step as it can help you manage your business finances more efficiently. When finding a bank account, you should find one that offers merchant services that can help you transact with customers.
Step 5: Finalize Your Permits
Most businesses require some kind of permit to operate. This is usually vital if you're planning to rent a commercial space for your business. These permits are regulated, so it's important to approach the necessary authority in advance.
Step 6: Create a Financial Plan
Having a financial plan can help guide your business. This plan should come with a budget, making it easy to outline your financial goals for the next few years.
Most financial plans don't include partners taking out money from the business. This is because most businesses choose to put profits back into the business to help it grow as fast as possible.
Step 7: Maintain Your Business
Once your business is set up, it's important to maintain it. This includes creating expansion plans and acquiring business insurance to help protect your company. Maintaining your business is essential as it can allow you to continue to grow.
Finding The Right Business Structure
When it comes to finding the right business structure for your new venture, it's important to explore your options. Doing your research beforehand can help you find the most optimal way to launch your business.
Your research should include how easy the business is to set up, how much it might cost, and how the taxes could apply to the profit you make. These factors can influence your decisions and help guide you to the most efficient, cost-effective structure for you.
Other Business Structures
If you're starting the business by yourself, operating as a sole proprietor could be a simple way to get started. However, one of the drawbacks is that you could be liable for the tax and debt that your business is required to pay.
Another popular option is to register a limited liability company. This is a formal approach that enables your company to exist completely independently. An LLC comes with its own set of rights and obligations that you should be aware of.
While you still can receive income from an LLC, it's not the same pass-through taxation benefits that you can get from a partnership. However, debts and liabilities are kept within the business and not passed on to shareholders in their personal capacities.
Business Insurance
Starting a business is a serious commitment. This is why it can be important to acquire business insurance to help protect it. Insurance policies can vary from helping to protect your assets to covering third-party liabilities or employees.
General Liability Insurance
General liability insurance is a common type of coverage that most businesses have. This coverage can help protect your business against third-party injuries, associated medical costs, and advertising injuries.
Business Property Insurance
Business property insurance can help protect the physical assets owned or rented by your business. It can cover the costs to repair or replace damaged items in the event of theft, fire, or other covered losses that harm your property.
Cyber-Risk Insurance
Computer-related crimes can impact your customers by stealing their information and your business reputation. Cyber-risk insurance can help keep your business protected in the event of a serious data breach. With coverage, expenses to notify customers and investigate the scope of an attack could be covered.
Business Owners Policy
If you're looking for an insurance policy for your general partnership, you can likely benefit from the types of coverages listed above. However, a Business Owners Policy from PolicySweet® includes all three coverages in one insurance bundle.
A Business Owners Policy can help protect your business from multiple risks and it can be easier to manage in the event of a claim.
HomeHQ Insurance
The HomeHQSM Insurance Policy is another useful insurance policy designed specifically for businesses that operate from home. This coverage includes general liability insurance, property insurance, and stock insurance to help protect your product inventory.
Get Insurance for Your Business Today
If you look at the guide on how to start a general partnership, you could have a better understanding on if this structure is right for you. The shared costs and liabilities can make it easy to grow and expand in the market. However, you should still consider purchasing business insurance to help keep your partnership protected.
As a co-founder and business owner, acquiring insurance can help reduce your risks. Contact your small business insurance experts today for more information on how you can protect your partnership.