Two people who agree to share the profits of a business are already partners, whether they signed anything or not. The Uniform Partnership Act (1997), enacted in some form in nearly every state, makes that automatic: "the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership" (section 202(a)). No filing creates a general partnership and none is required to end up personally liable for its debts, jointly with the other partner, for every dollar the business owes (section 306(a)).

That is the first decision hiding inside "how do we start this." Before a name is chosen or a bank account opened, two people have to decide whether a plain general partnership, with its automatic formation and unlimited personal liability, is the structure they actually want, or whether an LLC, an LLP or a limited partnership, each requiring an actual filing, is the better fit. What follows is the order to do the rest in once that is decided, what each step costs, and what the law decides for a partnership that writes nothing down.

Choose the structure first

All four structures below file the same federal return by default, Form 1065, with each owner's share reported on a Schedule K-1. What differs is whether starting one needs a state filing, and what happens to each owner's personal assets if the business cannot pay its debts.

Business structures for two or more owners

Structure State filing to start Owner liability First federal return
General partnership None required in most states (an assumed name certificate may be needed locally) Each partner is personally liable for all partnership debts, jointly with the others (section 306(a)) Form 1065
LLC with two or more members Articles of organization with the state, a fee due Liability generally limited to what was invested, absent a personal guarantee Form 1065 by default (an LLC may elect corporate tax treatment instead)
Limited liability partnership (LLP) Registration with the state, a fee due; in many states limited to licensed professions In most states, a partner is shielded from the firm's debts and from the other partners' acts Form 1065
Limited partnership (LP) Certificate of limited partnership filed with the state General partner(s) fully liable; limited partners liable only up to what they invested, if they do not take part in management Form 1065

The reference table of LLC and LLP filing fees by state has the actual cost and paperwork for the states where a filing is required; which states restrict an LLP to licensed professions is in the same table.

The steps, in order

Starting a business partnership

  1. Decide the structure

    Pick from the table above. If liability protection matters and the business will hold real assets or carry real risk, an LLC or LLP is usually worth the filing fee; a general partnership is formed by doing nothing.

  2. Choose a name and check it is free

    Check the name against the state's business registry and, if it differs from the owners' own names, file an assumed name ("doing business as") certificate, usually with the county or the state.

    Often $10 to $50 locally
  3. File with the state, if the structure needs it

    A general partnership needs no state filing in most states. An LLC, LLP or LP files its formation document and pays the fee; see the fee table for the actual figures by state.

  4. Get an EIN

    Apply free, online, at irs.gov. The business must be in the United States or a U.S. territory, and the responsible party can get only one EIN per day.

    Minutes, online Free
  5. Write the partnership or operating agreement

    Decide, in writing, what the law will otherwise decide for you: the profit split, who can sign for the business, what happens if someone leaves. What to include in a partnership agreement is the clause-by-clause version of this step.

  6. Open a business bank account

    Keep the owners' and the business's money separate from the start; most banks ask for the EIN letter and, for an LLC or LLP, the state's filing receipt.

  7. Get any license, permit or insurance the business needs

    Requirements are set locally and by industry; general liability and, where the owners will work in the business, workers' compensation are the common first purchases.

  8. File the first Form 1065

    Due the 15th day of the third month after the tax year ends (March 15 for a calendar year); Form 7004 extends it six months. Late filing costs $255 per partner per month, up to 12 months.

    No filing fee; the IRS penalty for being late is $255 per partner per month

What the law decides if you never write anything down

This is why a handshake arrangement to split revenue from a side project can become a partnership nobody meant to form, with each person on the hook for the other's decisions (section 306(a)). Are you liable for your business partner's debts covers how far that exposure goes and what a structure change can and cannot limit once the business already has debts. If the two founders have not yet worked out what kind of partner each wants to be, the planning questions to ask before forming one belong before this page, not after it.

What to check once the paperwork is done

Before calling it started

  • The EIN letter, saved; the bank will ask for it
  • The state's filing receipt, if an LLC, LLP or LP was formed
  • A signed partnership or operating agreement, not a draft
  • A separate business bank account open, with every owner's name or authority on file
  • The licenses and insurance the business actually needs to operate legally
  • A calendar reminder for the first Form 1065, with the 15th-of-the-third-month date marked