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

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Create a General Partnership in California

If you would like to create a general partnership in California, 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 California 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 California.

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

Steps in Creating a General Partnership in California

What is General Partnership in California?

A general partnership in California 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 California Corporations or limited liability partnerships.

It is recommended that you consult to California 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 California 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
  • California 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 California

To create a general partnership in California, 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 California. 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 California 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 California with California Department of Tax and Fee Administration.

Filing a DBA in California has two methods, online and by mail, which costs around $26 for filing and $5 for each additional business name.. There is five years validity in renewing your DBA. 

In California, 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 60 days. You must file a name reservation application in the California Department of Tax and Fee Administration 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 California. 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 California. The default laws might not be appropriate for your requirements.

Step 3: Request an EIN in California

After completing the partnership agreement, you should get or seek an Employer Identification Number (EIN) in California. 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 California 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 California 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 California. Numerous general partnership licenses need to be filed and renewed regularly.

In California, 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 California.

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 California 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 California, check out the Best Bank for California Small Business.

Pros and Cons of a General Partnership in California

In forming a general partnership in California, 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 California

  • 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 California

  • 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 California

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 California, the business license fee ranges from $50 – $300, and varies by jurisdiction and license type.

Pay Your Taxes in California

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

California taxes information will help you with what to pay before or during the operation of your professional corporation. You can check out the California 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 California?

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

FAQs

What is a general partnership in California?
A general partnership is a type of business entity in which two or more individuals carry on a business for profit as co-owners.
How do I form a general partnership in California?
To form a general partnership in California, you need to file a Statement of Partnership Authority with the California Secretary of State.
Who can form a general partnership in California?
Any two or more individuals can form a general partnership in California.
Do I need to register a general partnership with the state of California?
Yes, you need to file a Statement of Partnership Authority with the California Secretary of State to register a general partnership in California.
What information do I need to provide when registering a general partnership in California?
You need to provide the name and address of the partnership, the name and address of each general partner, and any other relevant information.
How long does it take to form a general partnership in California?
It usually takes 1-2 weeks to form a general partnership in California, depending on the workload of the California Secretary of State.
How much does it cost to form a general partnership in California?
The filing fee to register a general partnership in California is $70.
Do I need to have a written agreement to form a general partnership in California?
No, a written agreement is not required to form a general partnership in California, but it is highly recommended.
What should be included in a partnership agreement in California?
A partnership agreement should include the name and purpose of the partnership, the contributions of each partner, the allocation of profits and losses, and the procedures for dissolution.
Are general partnerships required to file income tax returns with the state of California?
No, but general partnerships are required to file an informational tax return with the state and notify each partner of their share of the partnership income.
Do general partners in California have personal liability for the partnership’s debts?
Yes, general partners have unlimited personal liability for the debts of the partnership in California.
Can a general partnership be owned by another partnership in California?
Yes, a general partnership can be owned by another partnership in California.
Are general partnerships in California subject to annual filing requirements?
No, general partnerships in California are not subject to annual filing requirements.
Can a general partner withdraw from a California general partnership at any time?
Yes, but a general partner is still liable for the partnership’s debts incurred before the withdrawal.
Can a general partnership be sued in California?
Yes, a general partnership can be sued in California.
How are profits and losses allocated among partners in a general partnership in California?
Profits and losses are allocated according to the partnership agreement in California.
Can a limited partnership be converted to a general partnership in California?
Yes, a limited partnership can be converted to a general partnership in California.
Can a limited partner also be a general partner in the same partnership in California?
Yes, a limited partner can also be a general partner in the same partnership in California.
Can a corporation be a general partner in a California general partnership?
Yes, a corporation can be a general partner in a California general partnership.
Can a nonresident be a general partner in a California general partnership?
Yes, a nonresident can be a general partner in a California general partnership.
Do general partners in California have personal liability for lawsuits against the partnership?
Yes, general partners have personal liability for lawsuits against the partnership in California.
How do I add a new partner to a California general partnership?
Adding a new partner to a California general partnership requires amending the partnership agreement and filing a Statement of Partnership Authority with the California Secretary of State.
Can a partnership in California own property?
Yes, a partnership in California can own property.
Can a general partner be removed from a California partnership?
Yes, but the partnership agreement must specify the process for removing a general partner in California.
Can a California general partnership be dissolved voluntarily?
Yes, a California general partnership can be dissolved voluntarily by the partners or by judicial decree.
Can a dissolved California partnership continue to do business?
No, a dissolved California partnership cannot continue to do business.
Can a California general partnership have more than one business location?
Yes, a California general partnership can have more than one business location.
Can a general partnership be managed by non-partners in California?
Yes, a general partnership can be managed by non-partners in California with the consent of all partners.
What are the requirements for starting a general partnership in California?
To start a general partnership in California, you need to file a partnership agreement with the California Secretary of State.
How do I form a partnership in California?
To form a partnership in California, you must file a partnership agreement with the Secretary of State.
How many partners are required to form a general partnership in California?
Two or more partners are required to form a general partnership in California.
How do I write a partnership agreement in California?
You can write a partnership agreement yourself or hire a lawyer to help you create one.
Does a partnership have to be registered with the state in California?
Yes, a partnership in California must be registered with the Secretary of State.
How much does it cost to register a partnership in California?
The fee for filing a partnership agreement in California is currently $70.
Is a partnership in California required to have a business license?
Yes, all businesses in California are required to have proper licenses to operate. Requirements vary by city and industry.
What liabilities do partners have in a general partnership in California?
Each partner in a general partnership in California is personally liable for the business’s debts and liabilities.
What is the difference between a general partnership and a limited partnership in California?
In a general partnership in California, all partners share equal responsibility for the business’s debts and liabilities. In a limited partnership, there can be one or more limited partners whose liability is limited to their investment in the business.
Can a general partnership in California have employees?
Yes, a general partnership in California can have employees, but the partners themselves cannot be considered employees.
Can I form a general partnership in California with someone who lives in another state?
Yes, it’s possible, but regulations may differ from state to state.
Can I convert my LLC to a general partnership in California?
Yes, it is possible to convert an LLC to a general partnership in California, but you should consult a lawyer to address this process’s legal complexities.
What happens if a partner dies in a general partnership in California?
If a partner dies, the partnership is dissolved unless the remaining partners agree to continue.
Can I transfer my ownership in a general partnership in California?
Yes, a partner in a general partnership can transfer ownership unless there is a clause in the partnership agreement that prohibits them from doing so.
How is the income taxed in a general partnership in California?
In a general partnership, each partner’s share of the profits and losses is taxed on their individual tax returns.
Do I have to file a separate tax return for my general partnership in California?
No, a general partnership in California is a pass-through entity, and partners report their income on their individual tax returns.
Can I take a salary as a partner in a general partnership in California?
No, partners in a general partnership cannot take a salary. Instead, they receive an agreed-upon share of the business’s profits.
Can creditors go after my personal assets in a California general partnership?
Yes, in a general partnership, each partner’s personal assets can be used to pay business debts and liabilities.
Can I form a non-profit partnership in California?
No, partnerships cannot be tax-exempt entities. It is better to form a corporation as a non-profit organization.
How often do I need to file annual reports for a general partnership in California?
General partnerships are not required to file annual reports in California. However, they must file a Statement of Partnership Authority every five years.
Do I need a business name to register a general partnership in California?
A business name is not a requirement to register a general partnership in California. However, a business must comply with California’s Doing Business As (DBA) naming procedures.
Can two non-profit corporations enter into a general partnership in California?
Yes, two non-profits can form a general partnership in California, provided all applicable rules, and regulations of the California Nonprofit Corporation Law.
Can a partnership agreement be changed in California?
Yes, a partnership agreement can be changed in California. However, all partners must agree on the changes, and the new partnership agreement must be filed with the Secretary of State.
Can a partnership in California be dissolved?
Yes, a partnership in California can be dissolved if a partner chooses, provided that it is in compliance with California laws and the partnership’s governing documents.
Are partnerships in California required to get insurance?
Though not legally required, getting insurance for a General Partnership in California is wise as each partner is personally liable in the absence of insurance.
Must all general partnerships in California have a bank account?
It’s a great idea for general partnerships in California to consider getting a separate bank account to keep their personal finances separate. Plus, most banks do require an Employer Identification Number (EIN) to open a business bank account.

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Conclusion

A general partnership can be viable for individuals looking to establish a business in California 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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