Why Two Heads Are Better Than One: A Comprehensive Guide in Creating a Partnership in Pennsylvania
Partnerships thrive on the magic of synergy, where individual strengths combine to create something truly exceptional. Yet, before you clink glasses and dive into your partnership, it’s essential to set your course wisely. Consider this guide your compass, and your map to establish a partnership in the heart of Pennsylvania.
Breaking down the term Partnership
A partnership in Pennsylvania refers to a business arrangement where two or more people join forces to start a venture. According to Pennsylvania’s Uniform Partnership Act found in Title 15, Chapter 84 of the state’s laws, this setup allows partners to pool their skills, resources, and money together. They collaboratively make decisions and share both the profits and losses. However, one downside is that each partner can be personally liable for the business’s debts, which means their own assets can be at risk. Unlike corporations or limited liability partnerships in Pennsylvania, a general partnership doesn’t provide a shield against this kind of personal financial exposure, even though it’s simpler to establish and provides more managerial flexibility.
Other flavors of Partnership
A limited partnership consists of at least one general partner and one or more limited partners. While the general partners manage the daily operations, the limited partners have reduced liability and typically stay out of everyday business matters.
An LLP (Limited Liability Partnership) and an LLLP (Limited Liability Limited Partnership) in Pennsylvania are derived from either general or limited partnerships. To achieve LLP or LLLP status, these partnerships must register with the Bureau of Corporations and Charitable Organizations under the Pennsylvania Department of State. By doing so, general partners can enjoy limited personal liability, giving them extra protection against the partnership’s debts and obligations.
The Highs and Lows of General Partnerships
Perks of a General Partnership:
Single taxation means you’re taxed just once on your portion of business earnings. It’s different from the double taxation system that corporations face. In that setup, the company pays taxes on its profits, and then its owners get taxed again on their individual income. But for a General Partnership, things are simpler. The profits directly become the owners’ personal income, and they pay taxes only on that amount. So, rather than being taxed twice like in corporations, partnership owners are taxed just once on their earnings.
Setting up a General Partnership is pretty straightforward. In Pennsylvania, there’s minimal paperwork involved, and managing one, including its tax responsibilities, is quite simple. Plus, there’s no need for a state-level business license. However, it’s good to check local city or county rules for any permit requirements.
Lows of a General Partnership:
In a General Partnership, a significant drawback is the absence of personal asset protection. This implies that you and your fellow partners are fully responsible for all the debts and obligations tied to the partnership. Consequently, any creditor of your business holds the right to pursue your personal assets, including homes and vehicles, to settle the business’s outstanding debts. Likewise, legal proceedings involving your business could also have an impact on your personal assets.
Full Steam Ahead – Forming Your PA Partnership
Create a Partnership Agreement:
While it’s not mandatory by Pennsylvania regulations to possess a Partnership Agreement, having one becomes necessary if you intend to set up a business bank account for your General Partnership. The responsibilities that each partner will make to the partnership are frequently outlined in the agreement; these commitments might include monetary contributions or specific services.
In Pennsylvania, there’s no obligation to register your Partnership Agreement with the state. The agreement becomes legally effective once all partners have signed it. It’s a good idea to retain a duplicate of the agreement along with your business documents for reference.
Make it Official – Title and DBA Your PA Partnership
With your business guidelines in place, the next step is to select a suitable name for your company. Often, a business name that differs from its official legal name is referred to as a fictitious name or a “doing-business-as” (DBA) name. In Pennsylvania, the term used for a DBA is officially a Fictitious Name, even though both terms essentially convey the same concept.
DBA or Not to DBA:
Opting for an alternate business name can enhance your brand’s image, visibility, and confidentiality. Furthermore, acquiring a DBA is often necessary when initiating a business bank account, as numerous banks mandate it for account setup. Utilizing a DBA can simplify interactions with your clients and suppliers, as they’ll find it more convenient to engage with your business using the DBA rather than the comprehensive legal name of your General Partnership.
- For Pennsylvania registration of your DBA (also known as Fictitious Name), a process involves submitting a Registration of Fictitious Name form accompanied by a fee of $70. This can be done through either mail or online methods.
- Procedure for Mail: Download the Registration of Fictitious Name Form and follow the guidelines for completion. Send the filled-out form and a check to the Bureau of Corporations at the Department of State.
- Procedure to do it online: Download the Registration of Fictitious Name Form and complete it as instructed. Establish a Keystone Login account on PA Business One-Stop Shop. Upon logging in, select Fictitious Name filings. Finally, upload the completed form and make the application payment.
In Pennsylvania, it’s also necessary to place an advertisement in two newspapers within the county where your business operates. This advertisement serves to notify that you have either filed or plan to file a registration application for a fictitious business name. The ad should incorporate the following details:
- The fictitious name of the Partnership.
- The address, including any street and number, of your main office or business location connected to the fictitious name.
- The name and address, including any street and number, of the individual submitting the registration.
- A declaration that a request for registering a fictitious name has been or will be submitted under 54 Pa.C.S.
When placing the required public notice about your Pennsylvania DBA registration, one of the two newspapers used must be a legal publication. If there are no legal periodicals available in your county, you can advertise in two general circulation newspapers instead. In counties with only one general newspaper, an ad in that single paper is sufficient. The Department of State maintains a list of legal newspapers.
Obtain EIN from the IRS and Other Tax obligations:
- Apply for an Employer Identification Number (EIN) from the IRS, which can be conveniently done through their online application.
- If your partnership employs individuals other than yourself and your partners within Pennsylvania, you should register for Pennsylvania employment taxes using either the Online PA-100 platform or the Online Business Registration Interview interface.
- Whenever you onboard an employee in Pennsylvania, it’s crucial to inform both the IRS and the Commonwealth of Pennsylvania. Comprehensive instructions for this process, including verifying eligibility to work and managing withholding allowances, can be found in the Hiring Employees section on the IRS website.
- If you have employees in Pennsylvania, adhering to workers’ compensation insurance is obligatory. The administration of this program falls under the Pennsylvania Department of Labor & Industry.
- Being a small business proprietor or employer might necessitate the submission of additional informational returns to the IRS on an annual or semi-annual basis. To gather more insights, refer to the IRS Guide To Information Returns.
Understanding Licensing Needs for Your Partnership:
In Pennsylvania, a state-level business license isn’t mandatory for General Partnerships. Nonetheless, numerous local or municipal administrations stipulate that every business secures a fundamental business license, often referred to as a tax registration certificate. This license can be procured from your respective city or county jurisdiction. For comprehensive details on fees and protocols, it’s advisable to connect with your local county or city clerk’s office or any relevant local governmental body. The local chamber of commerce and fellow small business proprietors could also serve as valuable sources for insights into local licenses and permits.
Securing a business bank account for your General Partnership holds significant importance. Maintaining a clear distinction between business and personal finances is a vital aspect of safe business operations.
Typically, to initiate a business bank account, most banks will request the following documents:
- A Partnership Agreement with signatures from all partners.
- Confirmation Letter (CP 575) for your EIN (Employer Identification Number)
- A DBA (Doing Business As) that’s both stamped and endorsed by the Department of State.
- State-issued photo identification for all partners.
Organizing Your Partnership Records:
Although Pennsylvania’s Uniform Partnership Act doesn’t prescribe precise records, it’s beneficial for your General Partnership to uphold the subsequent documentation:
- Replicas of tax reports from the last three years.
- Duplicates of the Partnership Agreement.
- Copies of any financial statements covering the past three years.
Creating a dedicated repository for these records is advisable. This could entail a physical filing cabinet at either a residence or the business premises, or alternatively, an online cloud storage solution where all documents are scanned and archived. This practice ensures organized record-keeping and smooth retrieval when needed.
Taxes Getting You Down?
As previously mentioned, when it comes to federal taxes, Form 1065 is used for reporting by a General Partnership. Nevertheless, this form primarily outlines the partnership’s earnings, losses, profits, and deductions. It’s important to note that the partnership itself isn’t directly responsible for paying taxes to the IRS. Rather, the individual partners are liable for taxes on the portions of profits they’ve earned, and this obligation is reflected in their individual tax filings. If needed, you might find it beneficial to seek the guidance of an accountant for this process.
Your Pennsylvania Partnership Awaits!
For people wishing to work together in business, establishing a general partnership in Pennsylvania may be an easy and profitable undertaking. Although the procedure is quite straightforward, it is crucial to comprehend the obligations and potential risks involved. While there are certain inherent dangers, most notably the vulnerability of personal assets, the benefits, such as easier tax requirements and management freedom, may tempt many entrepreneurs to choose it. However, like with any commercial venture, it may be difficult to navigate the legal complexities and make sure all bases are covered.
Premier Legal Solutions LLC provides thorough legal advice on all facets of creating a Partnership in PA. We aim to assist business owners in navigating this legal route with confidence and simplicity. Contact us at 267-245-0649 or email us at firstname.lastname@example.org to schedule a consultation and take the first step in securing your company’s partnership.