Form a General Partnership in California

A general partnership automatically exists when two or more people decide to manage a business together as co-owners. As a general partner, you’ll share responsibility for controlling and managing the business.

Operating a general partnership in California might be low-maintenance and tax-efficient, but it’s not for everyone. We explain how to form a general partnership in California and who should consider creating one.

Step 1: Determine if you should start a general partnership

A general partnership can be useful in many ways, but it may not be the best company form for you. Continue reading to learn about the key advantages and disadvantages of forming your business as a partnership in California to help you decide if you should do so.

Pros

A partnership can be a good business solution because:

• It’s simple to create
• It requires little upkeep (low maintenance)
• In general, the allocation of profits and losses is clear
• You won’t pay separate corporate taxes

The general partnership structure is useful for short-term initiatives. On the other hand, a general partnership is not a good choice if you want to manage the company long-term and leave a legacy. Under California law, partnerships frequently end when a partner leaves (dissociates) or dies.

Cons

Not all business types are a good fit for every business owner. Depending on your project, forming a general partnership in California may bring a number of problems that you’d prefer to avoid, such as:

• Partners are joint and severally responsible for the legal and financial concerns of the partnership (debts, negligence, malpractice, etc.)—that means any partner can be held responsible for the partnership’s entire debt
• Potentially complicated requirements for transferring ownership
• As opposed to corporations, it may be more difficult to obtain outside funding.

Before creating a partnership, it’s a good idea to consult with your legal and financial advisors. Only a professional familiar with your business circumstances can tell you what is right for you and your business. If you are looking for more robust liability protection than a general partnership can provide, we can help with easy and efficient Formation Services for registering a California LLC or a California Corporation. 

Step 2: Choose a Business Name

Once you’ve chosen a business structure that fits your needs, your next step is to choose a business name. California doesn’t require general partnership registration, so if you don’t register your business with the Secretary of State, your business will be formally known by the last names of the partners. For example, if your last name is Smith and your partner’s name is Becker, the state will recognize your business as “Smith Becker.” If you want to use a name that does not include the partners’ last names, you’ll need to file a “fictitious” or DBA name.

Step 3: File a DBA Name (if needed)

To let the public know who is behind a business that doesn’t use the partners’ last names, you need to register a doing business as (DBA) or fictitious business name (FBN) with the Registrar-Recorder or County Clerk’s office in the county where your business will be located. You want to ensure that your FBN name is unique from those of other registered businesses in California.

The state generally requires new businesses to file their FBN within 40 days of opening. Also, you’ll publish your FBN in a local newspaper of general circulation near the principal place of business once a week for four weeks. Your California DBA statement is valid for five years after filing.

Step 4: Draft and sign partnership agreement

Drafting a partnership agreement will help you forecast how to resolve conflicts about business operations and ownership. Your partnership agreement will define the relationships between the partners and the partnership. A typical California general partnership agreement includes rules for:

• Owner voting proportions for business decisions
• Self-serving behaviors that won’t violate the duty of loyalty
• Standards for measuring compliance with good faith and fair dealing

In addition, California partnership law requires all the partners to consent before making an amendment to the partnership agreement. If you do not have a partnership agreement, you’ll have to solve any conflicts by following the defaults in the Partnership Act. If you like having control over the governing of your business, consider having a written partnership agreement.

Step 5: Obtain licenses, permits, clearances

Before you can legally do business in California, you must obtain any required licenses and permits. Licensing is usually by industry, so check with the California Department of Tax and Fee Administration (CDTFA) to see if you need a license. The CDTFA manages licenses for sales (seller’s permit) and use taxes, fuel taxes, professional licenses, and environmental fees.

You’ll also want to check if the county where you operate requires your partnership to get local-level permits. To help you get started, we offer a Business License Report Service that takes information about your business’s location, industry, and other factors to compile a list of licenses and permits your business might need. 

Step 6: Get an Employer Identification Number (EIN)

Every business needs to register with the IRS to obtain an EIN. Your EIN identifies your business for federal tax purposes. You’ll need it to pay federal taxes and issue paychecks to employees. While your list of paperwork grows, use our EIN Registration Service to get your EIN.

Step 7: Get California State Tax Identification Numbers 

If you register as a general partnership with the California Secretary of State (SOS), you’ll be assigned a California SOS file number to use on your state tax returns. It’s also needed when you create an online tax account with CDTFA, which is the most efficient way to pay your taxes.

Forming a Business Partnership in California: Next Steps

By now you’ve got a good idea of how to form your general partnership in California. Your next steps will be in the operational areas of running a business, like securing insurance, buying inventory, or opening a business bank account. Don’t forget to use our Worry-Free Compliance Service, and we’ll keep all your legal documents in one place. Plus, we’ll remind you of important compliance deadlines. You will also want to keep up with your taxes.

How We Can Help

If it’s time to start your business, let our business experts help you with our specially curated Business Formation Services. We’re here for you every step of the way with our suite of business services designed specifically to help you get your business up and running and keep up with state compliance requirements throughout the life of your business.