Working with a business partner can be a great way to share the responsibility and the financial risk when starting a new company. If it’s a small operation, it can also be a great way to divide the labor and profits without needing to formally hire employees. Before starting a partnership, it’s important that you understand the options available for structuring a company with your partner and what it means to set each one up. You also need to research how to take the steps to open your business.
The first decision to make is whether your partner is an equal shareholder or a minority investor. This is a matter of private negotiation, and if you have multiple partners it could involve multi-directional negotiation. Once that is decided, you will need to choose between a limited partnership and an LLC. The LLC provides you with options for reporting taxes and income the simpler partnership documents do not, and liability for the company’s actions are different under each. Do the research to see which fits your business.
Your business partner will also need to work with you to decide who is going to register important paperwork. To get a partnership off the ground, you will need to register the business in your home state. Many states issue a business license or tax reporting number to confirm the registration. You also need to get an EIN from the IRS for your federal tax reporting. If you have owned a sole proprietorship in the past, you might be used to the EIN being optional until you hire employees. That is not true for partnerships, you need one for tax reporting.
After you have a business license and EIN, your business is technically able to start operations and your partnership is in place. From there, all you need to do to launch the company is the regular pre-launch lineup work that you would still need to do if you owned the company by yourself. The great part about working with a business partner or two is that work can be divided up, allowing for a larger launch while making the entire process less stressful.
There are a lot of ways to launch a partnership successfully, but all of them involve the same basic early steps. You’ll need the tax reporting and business registration paperwork to be completed, and that means reaching an agreement with your partners about duties and responsibilities first. After that, it’s a matter of paperwork.