How to Become a General Partnership
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How to Form an Alabama General Partnership
Successful partnerships require more than a handshake and a contract. Learn about the steps involved in starting an Alabama general partnership.
An Alabama general partnership is an association of two or more persons to carry on as co-owners of a business for profit, with such associates sharing in the management and control of its activities, and dividing its profits among themselves.
General Partnerships are just one of the many ways for several individuals to co-own a business. In this guide, we will review how the general partnership stacks up against the other formal business structures in Alabama.
How to Become an Alabama General Partnership
If you want to start a general partnership in the state of Alabama, there is no formal process to complete.
Forming a general partnership in Alabama only requires you to work with your partner or partners. LLCs don’t have any filing requirements like annual reports that corporations and nonprofits do.
While all of the legal requirements are really simple, you may want to take some other steps, depending on your vision and goals for the company. Let’s review the additional steps to see if they are a good fit for your business needs.
Obtaining a DBA
If your Alabama general partnership does business under a name other than your own, you may be required to register with the state. You may not do business in the state of Alabama by any other name than that filed with the Department of Commerce, Community, and Economic Development.
A DBA or “doing business as” filing is how people publicly identify themselves as doing business under a certain name.
Once you obtain your DBA, the general partnership can open business bank accounts and run the business using the desired name.
To register for a DBA in Alabama, first, conduct a business entity search to see if the name is available. If Alabama has the desired DBA available, then you can secure it by submitting a Business Name Registration Form.
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Register for Taxes
Besides having more than one owner, the other major difference between a general partnership and sole proprietorship is the requirement of a federal tax ID number (EIN).
With a sole proprietorship, you can use your social security number, but with a partnership, you need an EIN to file an annual return with the IRS. You may also be required to register for state and local taxes as well.
You can use the Alabama Department of Revenue’s online portal to register for state and local taxes. In Alabama, there is no sales or personal income tax unless you are in certain industries.
License and Permit Requirements
Although the state of Alabama does not currently require general partnerships to obtain any licenses or permits, there can be a number of business decisions associated with starting a partnership that requires professional guidance to make sure they are appropriate for your business needs.
There are some business types that do require a license or permit to legally operate. It is recommended to visit the Alabama Department of Revenues online portal to determine what’s needed for your business.
You will also want to ensure you are compliant with all local licenses and permits as well. Some of the larger cities in Alabama have their own additional requirements.
What Is a General Partnership?
General partnerships are just one of the many ways for several individuals to co-own a business. It has many similarities to a sole proprietorship. Both are viewed as an extension of the business owner as opposed to an actual separate legal entity.
Here are the two biggest differences between choosing a general partnership and other business entities:
Lack of Asset Protection
One of the biggest differences between a general partnership and other business structures is personal asset protection. Structures such as limited liability companies. (LLC) and corporations offer limited liability protection. This means a creditor can only come after your business assets while keeping your personal assets protected.
Taxes and Signatures
With general partnerships, the “pass-through” model applies due to the lack of legal distinction between the partners and the owners. A partnership is a business entity that has more than one owner. So, the profits and losses are reported on each owner’s personal tax return.
When it comes to signing for the business, the owners have to sign their own names instead of signing on behalf of the business. The business can also accept payments in the owner’s names such as a check for a product or service.
A general partnership can be a much simpler solution for multiple owners compared to an LLC or corporation. Although its simplicity is convenient, there are a lot of disadvantages when you compare it to a limited liability company or corporation.
If an Alabama general partnership is not the right fit for your situation, be sure to check out our guides on Alabama LLCs and Alabama Corporations. We look forward to helping your business grow!