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

by
Create a General Partnership in Delaware

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

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

Steps in Creating a General Partnership in Delaware

What is General Partnership in Delaware?

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

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

To create a general partnership in Delaware, 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 Delaware. 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 Delaware 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 Delaware with Delaware Division of Corporations.

Filing a DBA in Delaware has two methods, by mail and in person, which costs around $25. There is Indefinite validity in renewing your DBA. 

In Delaware, 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 Delaware Division of Corporations 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 Delaware. 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 Delaware. The default laws might not be appropriate for your requirements.

Step 3: Request an EIN in Delaware

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

In Delaware, 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 Delaware.

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

Pros and Cons of a General Partnership in Delaware

In forming a general partnership in Delaware, 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 Delaware

  • 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 Delaware

  • 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 Delaware

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 Delaware, the business license fee ranges from $50 – $300, and it is renew annually, by December 31st.

Pay Your Taxes in Delaware

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

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

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

FAQs

Why form a general partnership in Delaware?
Delaware is a popular state for forming a general partnership because of its business-friendly climate, favorable tax laws, and predictable legal system.
Can non-residents form a general partnership in Delaware?
Yes, non-residents can form a general partnership in Delaware.
What are the requirements for forming a general partnership in Delaware?
To form a general partnership in Delaware, you need to file a certificate of formation with the Delaware Division of Corporations, pay a filing fee, and appoint a registered agent in Delaware.
Can a general partnership that was formed in another state domesticate in Delaware?
Yes, a general partnership that was formed in another state can domesticate in Delaware by filing an application for registration with the Delaware Division of Corporations.
Are there any residency requirements for partners in a Delaware general partnership?
No, there are no residency requirements for partners in a Delaware general partnership.
Do I have to have a written partnership agreement to form a general partnership in Delaware?
No, it is not required to have a written partnership agreement, but it is highly recommended.
What information do I need to include in the certificate of formation for a Delaware general partnership?
The certificate of formation for a Delaware general partnership should include the name of the partnership, address of the partnership, name and address of the registered agent, and the name and address of each partner.
How long does it take to form a general partnership in Delaware?
The filing process for a general partnership in Delaware is usually quick, and the certificate of formation is typically processed within a few days of the filing.
Is there a minimum number of partners required to form a Delaware general partnership?
No, there is no minimum number of partners required to form a Delaware general partnership.
Can a general partnership in Delaware be managed by non-partners?
Yes, a general partnership in Delaware can be managed by non-partners.
What are the tax implications of forming a general partnership in Delaware?
Delaware does not have a state-level income tax, but it is important to consult with a tax professional for guidance on any federal or local tax implications.
Can a general partnership do business outside of Delaware?
Yes, a Delaware general partnership can do business outside of Delaware, but will need to follow the registration and licensing requirements in those states.
Can a general partnership in Delaware change its name?
Yes, a general partnership in Delaware can change its name by filing an amendment to the certificate of formation with the Delaware Division of Corporations.
Do I need to renew my Delaware general partnership annually?
Yes, a Delaware general partnership must file an annual report with the Delaware Division of Corporations and pay a renewal fee.
Can a general partnership be converted to another business structure in Delaware?
Yes, a general partnership can be converted to another business structure in Delaware by filing the necessary paperwork.
Can a partner in a Delaware general partnership contribute capital instead of cash?
Yes, a partner in a Delaware general partnership can contribute capital in the form of assets such as property or services instead of cash.
What happens if a partner in a Delaware general partnership wants to leave?
If a partner wants to leave the partnership, this should be addressed in the partnership agreement, and the partner should follow the terms set forth in the agreement.
Can a general partnership in Delaware be owned by an LLC or corporation?
Yes, an LLC or corporation can be a partner in a Delaware general partnership.
Are there any business activities that a general partnership in Delaware cannot engage in?
Yes, certain industries, such as banking and insurance, may have additional requirements or restrictions that a general partnership must follow.
Can a Florida general partnership operate with a Delaware business license?
No, a Florida general partnership cannot operate with a Delaware business license.
Why do people choose Delaware for business formation?
People choose Delaware for business formation due to its favorable tax laws, business-friendly legal system, and predictability of its courts on business matters.
Is a Delaware general partnership required to have an attorney to form the business?
No, a Delaware general partnership is not required to have an attorney to form the partnership, but it is recommended to consult with a skilled attorney for advice and counsel throughout the process.
Are foreign partners subject to Delaware tax in a general partnership?
Foreign partners who do not reside or conduct business in Delaware are not subject to Delaware tax on their share of the income generated by the general partnership.
Can the partnership be sued as a whole in a Delaware general partnership?
Yes, the partnership can be sued as a whole in a Delaware general partnership, but each partner may be personally liable for their contribution if the damages exceed the partnership’s assets.
What are the annual fees for maintaining a general partnership in Delaware?
The annual fees for maintaining a general partnership in Delaware include filing an annual report with Delaware and paying a fee of $300 or $400, depending on the number of partners in the business.
What is the limit to the number of partners in Delaware general partnerships?
There is no limit to the number of partners that a Delaware general partnership may have.
Can a Delaware general partnership protect personal assets of partners?
No, a Delaware general partnership does not provide any liability protection for personal assets of partners.
Will a general partnership in Delaware pay franchise tax annually?
Yes, general partnerships with a physical presence in Delaware must pay an annual franchise tax in January each year. Also, general partners may be subject to an alternative minimum tax irrespective of Delaware sourced revenue.
What is a general partnership?
A general partnership is a type of business structure in which two or more partners join together to run a business.
How do I form a general partnership in Delaware?
To form a general partnership in Delaware, you and your partner(s) must file a certificate of formation with the Delaware Secretary of State.
What is a certificate of formation?
A certificate of formation is a legal document that registers a new business entity with the Delaware Secretary of State.
Can I file a certificate of formation online?
Yes, you can file a certificate of formation online through the Delaware Division of Corporations website.
What information do I need to include in my certificate of formation?
You need to include the name and address of your general partnership, the name and addresses of all partners, and any other required information as specified by the Delaware Secretary of State.
How much does it cost to file a certificate of formation in Delaware?
In Delaware, the fee to file a certificate of formation is $90.
How long does it take to process a certificate of formation in Delaware?
In Delaware, the processing time for a certificate of formation is approximately two weeks.
Do I need a lawyer to form a general partnership in Delaware?
You do not need a lawyer to form a general partnership in Delaware, but it is recommended to consult with one before filing the necessary paperwork.
What taxes do I need to pay as a general partnership in Delaware?
General partnerships in Delaware are not subject to corporate income tax. Instead, partners report their share of the partnership’s income on their personal income tax returns.
What is a partnership agreement?
A partnership agreement is a legal document that outlines the terms, conditions, and expectations of the relationship between partners in a general partnership.
Is a partnership agreement required to form a general partnership in Delaware?
A partnership agreement is not required by law to form a general partnership in Delaware, but it is recommended to have one to avoid any future disputes.
How do I register my general partnership for tax purposes in Delaware?
To register your general partnership for tax purposes in Delaware, you must obtain an EIN (Employer Identification Number) from the IRS.
Do I need to file an annual report for my general partnership in Delaware?
Yes, you must file an annual report for your general partnership in Delaware. The report is due by March 1st of each year.
How much does it cost to file an annual report for a general partnership in Delaware?
In Delaware, the fee to file an annual report for a general partnership is $300.
What information do I need to include in my general partnership’s annual report?
You need to include your general partnership’s name and registration number, the names and addresses of all partners, and any other required information as specified by the Delaware Secretary of State.
Can I file my general partnership’s annual report online?
Yes, you can file your general partnership’s annual report online through the Delaware Division of Corporations website.
What are the benefits of forming a general partnership in Delaware?
Delaware has a favorable business environment with flexible laws and low fees, making it an attractive state to establish a general partnership.
Can a general partnership in Delaware change its business name?
Yes, a general partnership in Delaware can change its business name by filing a certificate of amendment with the Delaware Secretary of State.
How much does it cost to file a certificate of amendment for a general partnership in Delaware?
In Delaware, the fee to file a certificate of amendment for a general partnership is $90.
How long does it take to process a certificate of amendment for a general partnership in Delaware?
In Delaware, the processing time for a certificate of amendment for a general partnership is approximately two weeks.
Can I dissolve my general partnership in Delaware?
Yes, you can dissolve your general partnership in Delaware by filing a certificate of cancellation with the Delaware Secretary of State.
How much does it cost to file a certificate of cancellation for a general partnership in Delaware?
In Delaware, the fee to file a certificate of cancellation for a general partnership is $200.
What is the process for dissolving a general partnership in Delaware?
The process for dissolving a general partnership in Delaware involves filing a certificate of cancellation with the Delaware Secretary of State and settling any outstanding debts or obligations.
Can I convert my general partnership into a different business structure in Delaware?
Yes, you can convert your general partnership into a different business structure in Delaware by filing the necessary paperwork with the Delaware Secretary of State.
What business structures can I convert my general partnership into in Delaware?
You can convert your general partnership into a limited partnership, limited liability partnership, or other business structure in Delaware.
What is a limited liability partnership?
A limited liability partnership (LLP) is a business structure in which all partners have limited liability protection from the debts and obligations of the partnership.
Can my general partnership become a limited liability partnership in Delaware?
Yes, your general partnership can become a limited liability partnership in Delaware by filing a certificate of conversion with the Delaware Secretary of State.
How much does it cost to file a certificate of conversion to a limited liability partnership in Delaware?
In Delaware, the fee to file a certificate of conversion to a limited liability partnership is $200.
How long does it take to process a certificate of conversion to a limited liability partnership in Delaware?
In Delaware, the processing time for a certificate of conversion to a limited liability partnership is approximately two weeks.
Is Delaware a good state to form a general partnership in?
Yes, Delaware is a popular state for businesses to form general partnerships due to its favorable business environment and flexible laws.

Also Read

Conclusion

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

Leave a Comment