Small Business Development Guide
Partnership
It takes two or more people to form a partnership. There are two types of partnerships: General and Limited. When starting either type of partnership you will need the following: a Tax ID Number, which can be obtained by filing a SS-4 Form with the IRS, call 1-800-TAX-FORM (1-800-829-3676); a business bank account; and the following tax filings:
- The partnership itself does not pay income taxes, but does file an annual Form 1065 for Federal Income Tax for informational purposes only. For more information call the IRS at 1-800-829-1040.
- The partnership pays Local/Municipal Income Tax on behalf of the partners and each partner gets credit for the amount paid on their individual returns on Schedule E. Contact your local tax department for more information.
- The partners must pay Federal and State Income Taxes based on the profits of the business on their own individual returns. See the Sole Proprietorship section of this guide for tax information.
Issues specific to the two types of partnership are the following:
General Partnership
In a general partnership, all partners are personally liable for the activities of the business and have the right to be involved in the management and operations of the business. Each partner contributes to the startup of the business. A partnership does not necessarily need a written agreement, but one is recommended.
Limited Partnership
A limited partnership can be created when you have two classes of partners--general partners, who are responsible for the management and operations of the business, and limited partners, who are passive investors and do not participate in the management of the business. A limited partner's liability is limited to the amount of his/her investment, whereas the general partners are fully liable for the activities of the business. The investment of the limited partners cannot be bought and sold without first considering the federal and state securities laws on limited partnership interests. Contact an attorney regarding these securities laws.