There are a few different kinds of business partnerships. They vary in legal structure depending whether – or how – the liability of partners can be limited. Here we’re touching only on the basics of forming a general partnership.
A general partnership is a business (that is not a corporate entity) that is owned by two or more people. Under state law, general partnerships have specific attributes:
A partnership must obtain business licenses when necessary. Not all businesses are regulated or require a license to operate in Minnesota. To find out if the business you’re considering requires a license, certification or permit, visit Minnesota ELicensing.
Partnerships must also obtain federal and state tax identification numbers; an unemployment insurance employer account number; and may need to register the business name as an assumed name, unless the first and last name of each partner is included in the name of the partnership.
Although the partnership itself is not a taxable entity, it must file an annual federal and state “information” return with the Internal Revenue Service and the Minnesota Department of Revenue.
For this reason, both federal and state tax identification numbers must be obtained. A partnership that will be selling a product or service that is subject to sales tax also will need to register for purposes of Minnesota sales and use tax.
Obtain the federal employer identification number first. To obtain a federal employer identification number (FEIN) from the Internal Revenue Service (IRS):
- Apply online at Apply for an Employer Identification Number (EIN) Online.
- Apply by fax. You can fax a completed Form SS-4 application to the appropriate fax number. See Where to File Your Taxes for Form SS-4.
- Apply by mail. File a completed Form SS-4 application. Find where to file the form at Where to File Your Taxes for Form SS-4.
You may apply for a state tax ID number online with the Minnesota Department of Revenue at Business Registration, by phone at 651-282-5225 or 800-657-3605, or by filing a paper form Application for Business Registration (ABR).
To apply online, you’ll need your federal employer ID number (FEIN), if applicable; business name or if applicable, Certificate of Assumed Name; business owner's Social Security Number; contact phone number and email address; the North American Industry Classification Code (NAICS); and business begin date.
Like marriages, business partnerships can be happy, productive and last for decades. They can be turbulent, fraught with difficulty and end unhappily. Or they can be a little bit of both. Of course, the success of any business partnership depends on the skills of the partners and how well they work together to manage the challenges they face.
But the foundation of that success is laid with a rock-solid partnership agreement that spells out the key managerial and operational details of the business. This is not a handshake arrangement or a verbal agreement, but a carefully thought-out, formalized, written document.
The partnership agreement addresses a broad number of issues relating to the management and operation of the partnership. In drawing up the partnership agreement, each of the prospective partners should consult an attorney to assure their needs (and all the relevant legal issues) are addressed. Here are some of the issues typically addressed in a partnership agreement, grouped into specific categories.
Remember, it is impossible to pay too much attention to the partnership agreement. While these are a good starting point, your business may require very specific additions to your partnership agreement. Not sure whether something is important enough to include in your partnership agreement? When it doubt, spell it out.
Consultants at our Small Business Assistance Office can help you understand partnership agreements and how to form general partnerships. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.
Our Guide to Starting a Business in Minnesota provides a detailed look at this and other important issues.
