Form a General Partnership in Kentucky

Forming a business partnership in Kentucky is an exciting step in becoming a business owner. Deciding on what form of business entity you want to have and how to form it is the first step to success. One fast and easy way for partners to get started without filing any additional paperwork is to form a Kentucky general partnership. 

You and your partner will want to confirm that the general partnership business model fits your needs before forming a partnership in Kentucky. In a Kentucky general partnership, business partners share equally in the company’s profits and losses.

Step 1: Determine if you should start a general partnership

A Kentucky general partnership can be a great entity type for many businesses. However, you’ll need to think through whether this is the right entity type for your specific type of business. Whether a general partnership is right for you often depends upon your budget for business compliance or how much potential personal liability you’re comfortable with.

We’ve put together some pros and cons of forming a partnership in Kentucky. Unfortunately, it can’t answer the question of what business structure is right for you and your partner. But looking at the pros and cons may help you decide if this is the business entity for you. 

Pros

A general partnership can be a great business entity option for many entrepreneurs because:

• A general partnership is very easy to form
• General partnerships require little maintenance
• General partnership compliance is relatively inexpensive
• The distribution of losses and profits is typically straightforward
• General partnerships enjoy pass-through taxation 

Shorter-term business ventures can really benefit from a general partnership structure. General partnerships don’t have the same permanence or lasting qualities as legal entities like LLCs or corporations. If your goal is to sell your partnership or pass your partnership interest down to your kids, a Kentucky general partnership may not be for you.

Iowa general partnerships are typically designed to dissolve when one partner leaves the business or passes away. It can be difficult and expensive to create a general partnership that’s easily transferrable, and other business entities may be more suitable to meet those goals.

Cons

Depending on the type of business you want to run, a business partnership in Kentucky can complicate your goals rather than streamline them. Some of the pitfalls of running a Kentucky general partnership include: 

• Lack of personal asset protection, unlike an LLC or corporation
• Partners held jointly and severally liable for the partnership’s liabilities
• Potentially stricter rules for transferring business ownership to a new partner
• Few, if any, options for raising capital compared to corporations and other types of business entities

If you’re still undecided, a trusted business adviser can give you additional insight on whether forming a partnership in Kentucky is right for your business. 

Step 2: Choose a business name

While you don’t need to register as a general partnership in Kentucky, you may need to reserve or register your business’s “assumed name.” An assumed name is any name for the business other than the partners’ first names, last names, or a combination thereof. Many Kentucky general partnerships use the names of their partners as their business’s name to keep things as simple as possible. If you decide you want to use a different name for your business, make sure to check out the Kentucky Secretary of State’s business naming rules.

Step 3: File a DBA Name (if needed)

Kentucky general partnerships that want to use an assumed name (sometimes called a “doing business as” or DBA name) should take two key steps to do so. First, complete a name availability search with the Kentucky Secretary of State to make sure you’ll be the only general partnership using that name. Once you’ve confirmed that your business’s name is unique, you can file a Certificate of Assumed Name with the Secretary of State.

Step 4: Draft and sign Partnership Agreement

In Kentucky, you can make many of your own rules for running your general partnership. This is typically done by drafting a Partnership Agreement, which is the document that governs how your business operates. The types of rules your Kentucky general partnership agreement might cover include:

• Admission of new partners
• Dissolution of the partnership
• Resolution of conflicts
• Rights of individual partners

In the absence of a Partnership Agreement, your business has to rely on the Kentucky Uniform Partnership Act for guidance on how to operate. However, the business guidance under these general codes and rules may not be a good fit for your partnership’s needs. Creating a comprehensive governing document gives you the power to decide how you want to run your company. This also protects your enterprise from internal conflicts.   

Step 5: Obtain licenses, permits, clearances

You might have to obtain certain licenses, permits, and clearances before you can get your business fully up and running. Working with our partners at Avalara, we can help your business by compiling a Business License Report. This report quickly identifies your licensing and permitting needs at the local, state, and federal levels of government. Once you have this report in hand, you’ll be able to identify how to apply for and get the licenses and permits you need without personally combing through thousands of regulations.

Step 6: Get an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is like a social security number for your business. This is something your Kentucky general partnership obtains from the Internal Revenue Service (IRS). An EIN is essential so your partnership can properly pay its federal taxes. We can help get that task off your plate with our Employer ID Number Service. 

Step 7: Get Iowa state tax identification numbers

You may also need to register for a state tax ID. This number is called your Commonwealth Business Identifier (CBI) and you can apply for it online. Even if you don’t sell goods or services or even have any employees, Kentucky requires all businesses to register for a CBI. Kentucky also uses this number to identify businesses when registering for licenses, permits, and government services. Raise any questions about your partnership’s potential state tax liability with your accountant or other tax professional.

Forming a Business Partnership in Kentucky: Next Steps

After you’ve formed your business, received permits and licenses, and set up your tax ID numbers, setting up a business bank account is your next logical step. You may also want to look into different types of business insurance, as well as potential office space to separate your home and workspaces. You will also want to keep up with your taxes.

How We Can Help

A Kentucky general partnership is easy to start and can be a great choice for many business owners to get going fast. But the small steps of legal compliance along the way may trip you up. Don’t worry, we won’t let you sweat the small stuff. Our renowned suite of business development and maintenance services can help you throughout the entire life cycle of your business.

And once you’re ready to form a new business, no matter what format, we can help with our Kentucky LLC and Kentucky Corporate Formation Services. We work with you to take the paperwork burden off your plate. Our fast, easy formation services can help get you focused on running your new business faster.