How to Set Up a Partnership

You and some friends have come upon a good business idea. The next step is to form a partnership and start making money. These steps show you how to do it correctly.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Partnership agreement

1. Determine which state the partnership will be in. Usually, it will be where you reside and plan to do business. Some people will advise you to set up your partnership in more tax-friendly states, but this is often more trouble than it's worth.
2. Choose a name for your partnership. Make sure it is not taken by another business or confusing for your clients or customers.
3. Decide the duties of each partner and how the profits will be distributed. Also decide the duties of each partner and the level of liability each partner is comfortable with.
4. Draft the partnership agreement, including all the details described in step 3. An attorney can draft one for you. Be careful about using free online templates for your partnership agreement. They may not cover your individual circumstances.
5. Obtain a federal tax ID number. You will need this number to open a bank account.

Tips & Warnings

• Check state and local laws to see if there are any other licenses or permits you must get.
• Be careful who you choose to partner with. Make sure you can work together and agree on important matters. It is easy to put together a partnership, but difficult and often painful to dissolve.