How to Create a General Partnership in Arizona | A Complete Guide

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Create a General Partnership in Arizona

If you would like to create a general partnership in Arizona, there are a few guidelines that you should understand. A general partnership is one of the things that a businessman considers since it comprises two or more entities to carry on a trade or business. Each partner contributes money, property, labor, or special skills, and each partner shares in the profits and losses from the business. You can start an LLC in Arizona for your general partnership to personally carry potentially unlimited liability.

Knowing about the general partnerships will benefit you and several partners, making you form your business properly. If you want to know more about the general partnership, follow our steps to Create a General Partnership in Arizona.

Webinarcare Editorial Team will help you create with thorough research and market study. Before starting a general partnership in Arizona, you must be guided by all the factors we have gathered in this article.

Steps in Creating a General Partnership in Arizona

What is General Partnership in Arizona?

A general partnership in Arizona is a business structure where two or more individuals come together to establish a business and agree to share the profits, losses, and management responsibilities. Each partner contributes skills, resources, and capital to the business and makes decisions collaboratively. In a general partnership, partners have unlimited personal liability for the debts and obligations of the business, meaning their personal assets can be used to cover any debts or liabilities incurred by the partnership. This type of business structure is relatively simple to form and offers flexibility in decision-making and management but lacks the legal protection of limited liability offered by other structures like Arizona Corporations or limited liability partnerships.

It is recommended that you consult to Arizona Business Attorney before beginning the process of forming your general partnership. They will understand what is best for you and your company. To shield your personal assets from corporate debts, you can always Start an LLC in Arizona rather than a general partnership.

– WEBINARCARE EDITORIAL TEAM

Example of a General Partnership

An example of a general partnership could be a small marketing agency created by two friends, Shane and Jane. Shane has a background in graphic design, while Jane has experience in digital marketing strategies. They decide to join forces and create a marketing agency that offers clients a combination of their expertise.

Shane and Jane contribute their skills, resources, and capital to start the business. They agree to share the profits, losses, and management responsibilities. Both partners actively participate in the agency’s day-to-day operations, making decisions and working with clients collaboratively.

In this general partnership, Shane and Jane have unlimited personal liability for any debts or obligations incurred by their marketing agency. If the agency faced financial difficulties, both partners’ personal assets could be used to cover the debts. However, the simplicity and flexibility of the general partnership structure allow them to manage and grow their business together easily.

Individuals looking to collaborate and numerous service providers have chosen general partnerships as their preferred business entity. That’s frequently because of its simple design, low price, and simplicity of setup. Some general partnership examples include: 

  • Providing Professional Services (architectural firms, medical clinics, etc.)
  • Selling goods at retail 
  • Opening a restaurant
  • Arizona Business Consulting

General partnerships are also formed by partners who are spouses or other family members who want to operate a business together.

Steps in Creating a General Partnership in Arizona

To create a general partnership in Arizona, you must follow the guidelines below: choosing a business name, making a partnership agreement, requesting an EIN, getting a license and permit, and opening a bank account. 

Step 1: Choose a Business Name

Naming your business is one of the most important activities during the startup phase, especially if you will form an LLC in Arizona. Your general partnership name serves as the foundation for your brand and is what clients use to connect you to the products or services you offer. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity without being hampered by irrelevant factors. 

For example, let’s assume the general partnership focuses on providing eco-friendly landscaping solutions. A potential name for this partnership could be “GreenScape Innovations.” This name highlights the business’s core values (eco-friendly) while also showcasing the industry (landscaping) and the innovative approach the partners aim to bring to the market.

For your to come up with this business name idea, here are some guidelines to consider when choosing a name for a general partnership:

  • Reflect on the Nature of the Business: Choose a name representing your products or services, and communicate your business’s essence to your target audience.
  • Keep it Simple and Memorable: A short, easy-to-pronounce name will be easier for customers to remember and share with others.
  • Make it Unique: Research the names of other businesses in your industry to ensure your chosen name stands out and does not infringe on any existing trademarks or copyrights.
  • Consider the Partners’ Names: Some general partnerships incorporate the partners’ names in the business name (e.g., Smith & Johnson Consulting). However, this approach may only be suitable for some businesses, especially if the names are difficult to pronounce or remember.
  • Test the Name: Share the potential name with friends, family, and potential clients to gather feedback and ensure it resonates with your target audience.
  • Check for Domain Availability: Research the availability of your chosen name as a domain name for your website and on social media platforms to ensure a consistent online presence.
  • Avoid Limiting your Business Scope: Choose a flexible name to accommodate future product or service changes. Avoid using specific locations, product names, or niche markets in the name if you plan to expand or diversify later.
  • Comply with Legal Requirements: Ensure the chosen name complies with any legal requirements or restrictions in your jurisdiction, such as avoiding misleading or offensive terms.
  • Consider Professional Input: Consult with Arizona Business Attorney or trademark specialist to ensure your chosen name is legally sound and can be registered as a trademark if necessary.

By following these guidelines, you can choose a name for your general partnership that is memorable, unique, and effectively communicates your business’s essence.

In addition, most general partnership businesses use the last name of all of their partners.  For instance, if Jennie Kim and Lalisa Manoban enter business together, the partnership name is “Kim & Manoban” by default. However, if you would like to form a business name under something more appropriate, such as “EJI Design and Build,” then you’ll need to File a DBA in Arizona with Arizona Department of Revenue.

Filing a DBA in Arizona has several methods. Check Arizona Trade Name Handbook for more details., which costs around $10 for filing and $3 for each duplicate copy.. There is five years validity in renewing your DBA. 

In Arizona, if you do not wish to file your general partnership business right away but want to hold the name that you have decided on, then you can reserve your business name for 120 days. You must file a name reservation application in the Arizona Department of Revenue to keep the name. 

Step 2: Make a Partnership Agreement

After you have chosen a business name for your general partnership, the next step would be making a partnership agreement in Arizona. A partnership agreement is a crucial document that outlines the terms and conditions governing a partnership. It helps to establish a clear understanding of each partner’s roles, responsibilities, and expectations and prevents disputes and misunderstandings.

Additionally, it discusses business management guidelines and potential contingencies that may arise, such as a partner’s passing or a partner’s decision to leave the partnership.

A partnership agreement should include the following:

  • Business name
  • Description of the business
  • Contact information of the business and its owners

Ownership of all business partners, decision-making, capital contribution, profits and distribution, death and disability, and withdrawal and addition of partners is one of the key factors to consider when forming or creating a partnership agreement. In this way, all business partners will understand what this is all about and how to proceed if the mentioned scenarios happen. 

Without a partnership agreement, your company will often be subject to the general partnership default laws of Arizona. The default laws might not be appropriate for your requirements.

Step 3: Request an EIN in Arizona

After completing the partnership agreement, you should get or seek an Employer Identification Number (EIN) in Arizona. An EIN will serve as your general partnership’s tax identification number. The Internal Revenue Service can provide you with an EIN. (IRS). It is a nine-digit number comparable to your Social Security number. EIN, on the other hand, is distinct from SSN. It is exclusively used for business-related operations, such as filing general taxes. The form must be filled out and sent to the IRS website. Obtaining an EIN cost between $30 and $280. 

The application of an EIN in Arizona can be through the following:

  • Apply Online- The Online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4PDF application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

You can benefit in various ways once you obtain your EIN number. It will give your general partnership the final advantage to operate at its full potential without legal or court problems.

Step 4: Get a License and a Permit

You must have Arizona Business License before your general partnership business operates. A business license is a document granted by a government agency that allows you to operate your business in the territory governed by that agency.

To legally operate your partnership, you’ll need a business license. You may need more than one license in Arizona. Numerous general partnership licenses need to be filed and renewed regularly.

In Arizona, the business license fee costs about $50 – $300.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Arizona.

Step 5: Open a Bank Account

After filing and receiving your general partnership license, you should open a bank account for yourself, your clients, and your employees.

A US bank account may make your business dealings in Arizona easier because it increases your company’s authenticity and profitability. Most banks require an EIN for firms other than sole proprietorships to open a business account. Keeping separate finances also prevents you from combining personal and professional finances.

If you would like to open a bank account in Arizona, check out the Best Bank for Arizona Small Business.

Pros and Cons of a General Partnership in Arizona

In forming a general partnership in Arizona, there are pros and cons that you may experience. I will list the pros and cons for you to understand why and how a general partnership is crucial. 

Pros of Forming a General Partnership in Arizona

  • Easy and Inexpensive to Form: General partnerships are relatively simple to establish, requiring minimal paperwork and registration costs compared to other business structures like corporations or limited liability companies.
  • Decision-Making: Partners can pool their skills, knowledge, and resources, leading to more efficient and effective decision-making and business operations.
  • Flexibility: General partnerships offer flexibility in management structure, profit distribution, and decision-making processes, allowing partners to customize their business relationships to best suit their needs.
  • Tax Benefits: In most jurisdictions, general partnerships are not taxed as separate entities. Instead, profits and losses are passed through to the partners, who report them on their income tax returns. This avoids the issue of double taxation that affects corporations.
  • Greater Access to Capital: With multiple partners, a general partnership may have increased access to capital and resources compared to a sole proprietorship.

Cons of Forming a General Partnership in Arizona

  • Unlimited Personal Liability: In a general partnership, all partners have unlimited personal liability for the debts and obligations of the business. This means that each partner’s personal assets can be used to cover any debts incurred by the partnership, which can be a significant risk.
  • Potential for Conflicts: As partners share management and decision-making responsibilities, disagreements or conflicts can arise, negatively impacting the business’s operations and success.
  • Limited Lifespan: A general partnership’s existence is often tied to the lives of its partners. The partnership may be dissolved if a partner withdraws, becomes incapacitated, or dies, potentially leading to instability and uncertainty.
  • Difficulty in Raising Capital: While general partnerships may have more access to capital than sole proprietorships, they may still need help raising funds compared to corporations or limited liability companies, as investors may be more hesitant to invest in a business with unlimited personal liability.
  • Lack of Legal Distinction: Unlike corporations or limited liability companies, general partnerships do not have a separate legal identity from their partners, limiting the partnership’s ability to enter into contracts or own property in its name.

When considering a general partnership, weighing the pros and cons and assessing whether this business structure aligns with your goals, risk tolerance, and desired level of management involvement is essential.

Maintain Business License in Arizona

You must maintain or renew your business license regularly now that you have established your general partnership. Make time at least once a year to check the status of your licenses. Then you will get everything important. You can deal with any problems that arise. In Arizona, the business license fee ranges from $50 – $300, and varies by jurisdiction and license type.

Pay Your Taxes in Arizona

Even if you have established your general partnership in Arizona, pay your taxes and keep everything up to date so you won’t pay any penalty. 

Arizona taxes information will help you with what to pay before or during the operation of your professional corporation. You can check out the Arizona Small Business Taxes to further understand why you must pay your taxes on time. 

Can I Convert My General Partnership Into Another Business Entity in Arizona?

By following the appropriate state procedures, you can convert your general partnership into another business entity, such as Arizona Corporation converting to an LLC; or Sole Proprietorship to Arizona LLC. This may involve filing conversion documents with the Arizona Secretary of State’s office and paying any required fees.

FAQs

What is a general partnership in Arizona?
A general partnership in Arizona is a business structure in which two or more individuals share ownership and management responsibilities.
How do I create a general partnership in Arizona?
To create a general partnership in Arizona, you need to file a partnership agreement with the Arizona Secretary of State.
Is there a fee to file a partnership agreement in Arizona?
Yes, there is a fee to file a partnership agreement in Arizona.
What is the fee to file a partnership agreement in Arizona?
The fee to file a partnership agreement in Arizona is typically between $50 and $100.
Do I need to have a physical address in Arizona to create a partnership?
Yes, you must have a physical address in Arizona to create a partnership in the state.
How many partners can I have in an Arizona general partnership?
You can have as many partners as you want in an Arizona general partnership.
What is the liability of partners in an Arizona general partnership?
Partners in an Arizona general partnership have unlimited liability for the debts and obligations of the business.
Can a partnership agreement be amended in Arizona?
Yes, a partnership agreement can be amended in Arizona.
How often should a partnership agreement be reviewed in Arizona?
A partnership agreement should be reviewed and updated at least annually in Arizona.
Do I need an attorney to create a partnership agreement in Arizona?
While it is not required to have an attorney to create a partnership agreement in Arizona, it is recommended to have one review the document.
Can a partnership agreement be verbal in Arizona?
Yes, a partnership agreement can be verbal in Arizona, but it is not recommended.
Are partnerships required to obtain a business license in Arizona?
Yes, partnerships are required to obtain a business license in Arizona.
Does each partner need a separate business license in Arizona?
No, only one business license is required for the partnership in Arizona.
How can I dissolve a partnership in Arizona?
A partnership in Arizona can be dissolved by agreement of the partners, or by court order.
How should partnership profits be distributed in Arizona?
Partnership profits should be distributed according to the partnership agreement in Arizona.
How are partnership expenses split in Arizona?
Partnership expenses are typically split equally between partners in Arizona.
Can one partner be liable for the actions of another partner in Arizona?
Yes, each partner is liable for the actions of all the partners in Arizona.
How is the profit and loss of a partnership reported in Arizona?
The profit and loss of a partnership is reported on the partners’ individual tax returns in Arizona.
Can a partner be an LLC in Arizona?
Yes, an LLC can be a partner in a general partnership in Arizona.
Are partnerships subject to state taxes in Arizona?
No, partnerships in Arizona are not subject to state income tax.
Do partnerships need to file a tax return in Arizona?
Yes, partnerships in Arizona must file a tax return with the Internal Revenue Service.
Can a partner have ownership in multiple partnerships in Arizona?
Yes, a partner can have ownership in more than one partnership in Arizona.
Can a partnership in Arizona choose to be taxed as a corporation?
Yes, a partnership in Arizona can choose to be taxed as a corporation for federal tax purposes.
Are partnership records required to be kept in Arizona?
Yes, partnership records must be kept in Arizona.
Can a partnership have multiple locations in Arizona?
Yes, a partnership can have multiple locations in Arizona.
What is the difference between a limited partnership and a general partnership in Arizona?
A limited partnership has at least one general partner with unlimited liability and at least one limited partner with limited liability, while a general partnership has all partners with unlimited liability in Arizona.
Can a general partnership in Arizona be converted to an LLC?
Yes, a general partnership in Arizona can be converted to an LLC.
Do partnerships in Arizona need to register with the Arizona Corporation Commission?
Yes, partnerships in Arizona need to register with the Arizona Corporation Commission.
What is a partnership agreement, and what should it include?
A partnership agreement is a legal document that outlines the terms and conditions of the partnership, including the roles and responsibilities of each partner, how profits and losses will be shared, and how the partnership will be dissolved. It should also include a statement of the purpose of the partnership, how long it will last, and any other important provisions.
Is it required to have a written partnership agreement?
No, a written partnership agreement is not required in Arizona, but it is highly recommended to protect the interests of each partner.
How much does it cost to file a partnership agreement in Arizona?
The filing fee for a partnership agreement in Arizona is $10.
What is the process for filing a partnership agreement in Arizona?
The partnership agreement must be signed by all partners and then submitted to the Arizona Secretary of State along with the $10 filing fee.
Can an out-of-state resident be a partner in an Arizona general partnership?
Yes, an out-of-state resident can be a partner in an Arizona general partnership.
Can a corporation or LLC be a partner in an Arizona general partnership?
Yes, a corporation or LLC can be a partner in an Arizona general partnership.
If one partner dies or leaves the partnership, what happens to the partnership in Arizona?
If one partner dies or leaves the partnership, the partnership may need to be dissolved unless there is a provision in the partnership agreement that addresses this situation.
Can I change the partnership agreement after it has been filed with the Arizona Secretary of State?
Yes, you can change the partnership agreement after it has been filed as long as all partners consent to the changes and a new agreement is submitted to the Arizona Secretary of State.
Do I need a business license to operate a general partnership in Arizona?
Yes, you may need a business license to operate a general partnership in Arizona. Contact the city or county where you plan to operate your business for specific licensing requirements.
Do I need to register my general partnership with the Arizona Department of Revenue?
No, general partnerships are considered “pass-through entities” for tax purposes in Arizona. Therefore, no registration is required.
Are there any tax benefits to forming a general partnership in Arizona?
There may be tax benefits to forming a general partnership in Arizona, such as passing through income and deductions to individual partners, rather than having the partnership taxed as a separate entity.
How are profits and losses shared in an Arizona general partnership?
Profits and losses are shared among partners based on the percentage of ownership specified in the partnership agreement.
Can I be personally liable for the debts of the partnership in Arizona?
Yes, as a general partner, you can be personally liable for the debts of the partnership.
Can I participate in management if I am a limited partner in an Arizona partnership?
No, limited partners are not generally involved in the management of the partnership.
What is the difference between a general partner and a limited partner in Arizona?
A general partner in Arizona has more management authority and can be held personally liable for the debts of the partnership, while a limited partner has less management authority and is not personally liable for the debts of the partnership.
Do I need insurance for my Arizona general partnership?
It is highly recommended that you carry liability insurance for your general partnership to protect your personal assets in the event of a lawsuit.
How do I dissolve a general partnership in Arizona?
To dissolve a general partnership in Arizona, a written notice must be sent to all partners, creditors, and other interested parties. The partnership must then settle its debts and distribute the remaining assets to the partners.
How much does it cost to dissolve a general partnership in Arizona?
The cost to dissolve a general partnership in Arizona will vary depending on the circumstances of the partnership. Consulting with a business attorney can provide more accurate cost estimates.
How long does it take to file a partnership agreement in Arizona?
Once the partnership agreement is signed and submitted to the Arizona Secretary of State with the $10 filing fee, it typically takes 7-10 business days to process.
Can I form a partnership with someone who has a criminal record in Arizona?
There is no law in Arizona that prohibits forming a partnership with an individual with a criminal record.
What are the advantages of forming a general partnership in Arizona?
Advantages of forming a general partnership in Arizona include shared management responsibilities, shared profits, and simplified tax filing requirements.
What are the disadvantages of forming a general partnership in Arizona?
Disadvantages of forming a general partnership in Arizona include shared liability, lack of autonomy in decision-making, and limited ability to raise capital.
Can I form a general partnership online in Arizona?
Yes, you can file a partnership agreement online through the Arizona Secretary of State’s website.
What should I do if I have disputes with my business partner(s) in an Arizona partnership?
Consult with a business attorney to help resolve disputes among partners in an Arizona partnership.
Can I transfer my partnership interest to someone else in Arizona?
Yes, you can transfer your partnership interest to someone else as long as it is allowed under the terms of the partnership agreement.
Can I form a partnership if I am not a resident of Arizona?
Yes, you can form a partnership in Arizona even if you are not a resident of the state.
Do I need to renew my partnership agreement annually in Arizona?
No, there is no requirement to renew a partnership agreement annually in Arizona.

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Conclusion

A general partnership can be viable for individuals looking to establish a business in Arizona with shared decision-making, management responsibilities, and profits. This type of business structure is relatively simple to establish and offers flexibility in operations. However, it is essential for potential partners to carefully consider the unlimited personal liability aspect of general partnerships, which means that each partner’s personal assets could be at risk to cover any debts or obligations incurred by the business. Before forming a general partnership, the partners should have a clear and well-drafted partnership agreement that outlines the roles, responsibilities, profit-sharing, and dispute-resolution mechanisms to ensure a smooth working relationship and minimize potential conflicts. Partners should also explore other business structures, like limited liability partnerships or corporations, to determine the best fit for their needs and goals.

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