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


Steve Bennett
Steve Bennett
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Create a General Partnership in Illinois

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

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

What is General Partnership in Illinois?

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

It is recommended that you consult to Illinois 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 Illinois rather than a general partnership.

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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
  • Illinois 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 Illinois

To create a general partnership in Illinois, 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 Illinois. 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 Illinois 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 Illinois with Illinois Department of Revenue.

Filing a DBA in Illinois has three methods, online, by mail, and in person filing., which costs around $50. There is Indefinite validity in renewing your DBA. 

In Illinois, 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 90 days. You must file a name reservation application in the Illinois 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 Illinois. 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 Illinois. The default laws might not be appropriate for your requirements.

Step 3: Request an EIN in Illinois

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

In Illinois, 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 Illinois.

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

Pros and Cons of a General Partnership in Illinois

In forming a general partnership in Illinois, 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 Illinois

  • 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 Illinois

  • 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 Illinois

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

Pay Your Taxes in Illinois

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

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

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

FAQs

What is a general partnership?
A general partnership is a business structure in which two or more partners share ownership and management responsibilities.
What are the requirements for forming a general partnership in Illinois?
In Illinois, the requirements for forming a general partnership include filing a certificate of partnership with the Secretary of State’s office and obtaining any necessary business licenses.
How many people can be in a general partnership in Illinois?
There is no limit to the number of people who can be in a general partnership in Illinois.
How is a general partnership taxed in Illinois?
General partnerships in Illinois are not required to pay state income tax. Instead, each partner is responsible for reporting their share of the partnership’s income on their individual tax returns.
What are the advantages of forming a general partnership?
Advantages of forming a general partnership include shared management responsibilities, simplified tax reporting, and the ability to capitalize on partners’ complementary skills and resources.
Can I form a general partnership with someone who lives in another state?
Yes, you can form a general partnership with someone who lives in another state, but you will need to comply with the partnership laws of both states.
What is a certificate of partnership?
A certificate of partnership is a legal document that must be filed with the Secretary of State’s office in order to form a general partnership in Illinois.
How much does it cost to file a certificate of partnership in Illinois?
The fee for filing a certificate of partnership in Illinois is $500.
How long does it take to form a general partnership in Illinois?
It typically takes 1-2 weeks to form a general partnership in Illinois after filing a certificate of partnership.
Can I form a general partnership without a lawyer in Illinois?
Yes, you can form a general partnership without a lawyer in Illinois, but it is recommended that you consult with one in order to ensure that all legal requirements are met.
How do I dissolve a general partnership in Illinois?
To dissolve a general partnership in Illinois, partners must file a statement of dissolution with the Secretary of State’s office and notify creditors and other interested parties.
Can I transfer ownership in a general partnership in Illinois?
Yes, ownership in a general partnership in Illinois can be transferred by the partner in question assigning their partnership interest to someone else, with the other partners’ consent.
Are general partnerships required to have a formal agreement in Illinois?
While general partnerships are not required to have a formal agreement in Illinois, it is generally recommended that they do in order to avoid potential disputes.
What happens to general partnership debt in Illinois?
General partnership debt in Illinois is the joint responsibility of all partners, meaning that each partner is personally liable for the partnership’s debts.
Can spouses form a general partnership in Illinois?
Yes, spouses can form a general partnership in Illinois.
Can a general partnership be formed for a specific timeframe in Illinois?
Yes, a general partnership can be formed for a specific timeframe in Illinois if the partnership agreement specifies a predetermined end date or event.
Are partners in an Illinois general partnership required to make equal contributions?
Partners in an Illinois general partnership are not required to make equal contributions, but they must be agreed upon in the partnership agreement.
Does Illinois have any residency requirements for general partnership partners?
Illinois does not have any residency requirements for general partnership partners.
Can an Illinois general partnership operate under a different name than its partners’ names?
Yes, an Illinois general partnership can operate under a name other than its partners’ names by filing an assumed name or “doing business as” (DBA) with the Secretary of State’s office.
Can an Illinois general partnership have both active and passive partners?
Yes, an Illinois general partnership can have both active and passive partners.
Can an Illinois general partnership have limited partners?
No, an Illinois general partnership cannot have limited partners unless it is registered as a limited partnership.
Can an Illinois general partnership have a board of directors?
No, an Illinois general partnership usually does not have a board of directors. Management is typically handled by the partners themselves.
Do Illinois general partnerships have to obtain a federal tax ID number?
Federal tax ID numbers, or Employer Identification Numbers (EINs), are not required for general partnerships in Illinois if the partnership has no employees and only reports income on partners’ individual tax returns.
Are Illinois general partnerships required to file annual reports?
General partnerships in Illinois are not required to file annual reports, but they must update their certificate of partnership if any of the information included in the original document changes.
Can an Illinois general partnership be sued in court?
Yes, an Illinois general partnership can be sued in court, and partners are personally liable for any damages assessed.
Are Illinois general partnerships required to provide workers’ compensation insurance?
General partnerships in Illinois are not required to provide workers’ compensation insurance unless they have employees.
Can a partner be removed from an Illinois general partnership?
Yes, partners can be removed from an Illinois general partnership if the partnership agreement includes provisions for removal or a partner breaches the partnership agreement.
Can minors be partners in an Illinois general partnership?
No, minors cannot be partners in an Illinois general partnership.
Is there a minimum age requirement for partners in an Illinois general partnership?
There is no minimum age requirement for partners in an Illinois general partnership.
What is a general partnership under Illinois law?
A general partnership is a business structure in which two or more people own and operate a business together.
Can a general partnership operate under a name other than the partners’ legal names?
Yes, in Illinois, a partnership may operate under a trade name.
How many partners are required to form a general partnership in Illinois?
At least two partners are required to form a partnership in Illinois.
Is there a limit to the number of partners a general partnership can have under Illinois law?
No, there is no limit to the number of partners that a general partnership can have in Illinois.
Can an unmarried couple form a partnership in Illinois?
Yes, unmarried couples can form partnerships in Illinois.
Do partners have any legal liability for the actions of their fellow partners in Illinois?
Yes, each partner is personally liable for the actions of the other partners in Illinois.
What role does the Illinois Secretary of State play in the formation of a general partnership?
Partnerships must file a certificate of partnership with the Illinois Secretary of State to make their partnership legal.
How is a certificate of partnership filed in Illinois?
A certificate of partnership can be filed online or by mail to the Secretary of State.
What information must be included in a certificate of partnership in Illinois?
The name of the partnership, the names and addresses of the partners, and the name and address of the partnership’s registered agent must be included in the certificate.
Is there a fee for filing a certificate of partnership in Illinois?
Yes, the fee for filing a certificate of partnership in Illinois is $250.
Are partnerships taxed at the state level in Illinois?
No, partnerships are not taxed at the state level in Illinois.
Are partners required to make contributions to the partnership in Illinois?
No, partners are not required to make initial or ongoing contributions to the partnership in Illinois.
Can partners withdraw from the partnership in Illinois?
Yes, partners can withdraw from the partnership in Illinois.
Can the partnership dissolve if one partner withdraws?
No, one partner’s withdrawal does not automatically dissolve the partnership.
How do partners divide profits in an Illinois partnership?
Profits are divided based on the partnership agreement or in the absence of an agreement, equally among the partners.
What happens if there is a loss in an Illinois partnership?
The partners share the loss based on the partnership agreement or equally if there is no agreement.
Are partners paid a salary in an Illinois partnership?
No, partners are not automatically paid a salary in an Illinois partnership.
Can partners vote to adopt a written partnership agreement in Illinois?
Yes, partners can vote to adopt a written partnership agreement.
What happens if there is a dispute among partners in Illinois?
Partners may resolve disputes through mediation, arbitration, or legal action in Illinois.
Can partners avoid personal liability for the partnership’s debts by obtaining business insurance in Illinois?
No, obtaining business insurance will not eliminate personal liability in the event of a partnership debt.
Are partners considered employees of the partnership for tax purposes in Illinois?
No, partners are not considered employees of the partnership for tax purposes in Illinois.
Do partnerships have to file annual reports in Illinois?
Yes, partnerships must file an annual report with the Illinois Secretary of State that includes information about the partnership’s existence and ownership.
Is a general partnership the best business structure for every business in Illinois?
No, each business should choose the structure that will work best for its specific needs in Illinois.
Can a general partnership be converted to an LLC in Illinois?
Yes, a partnership can convert to an LLC in Illinois with certain legal formalities.
Can a partnership merger with another partnership in Illinois?
Yes, a partnership merger may occur with the approval and filing of certain legal documents.
Can partners bring in new partners to a partnership in Illinois?
Yes, but new partners must be approved and a new partnership agreement must be developed.
How can partners dissolve a partnership in Illinois?
Partners may dissolve a partnership either through a written partnership agreement or mutually agreed upon course of action.
What happens to business assets after a partnership dissolves in Illinois?
Business assets will be distributed to the partners based on the partnership agreement or Illinois law if there is no agreement.

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Conclusion

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