U.S. Partnership: Requirements, Advantages, Costs
What is a partnership?
Partnerships are the simplest and most efficient type of business entity in the United States. Under U.S. law a partnership is a business association of two or more individuals, through which partners share the profits and responsibility for the liabilities of their business. Partnerships have no formal startup costs, and usually have no regulations aside from industry specific rules to comply with.
What are the basic requirements for a partnership?
A partnership is the default status a business is given (sole proprietorship is only one partner), and essentially can begin working without any permission or registration with the state. The only things a partnership will need to start are the components that it will need to conduct its business activity, such as contracts, agreements between the partners, and if desired, a sperate bank account and tax ID number.
Advantages of a U.S. partnership
The advantages of using a partnership structure as a business include:
- Maximum freedom
Generally, most states have no (or very minimal) laws that regulate how a partnership operates. There are virtually no formal reporting or accounting requirements to the state, but (as with all businesses) this will depend on the type of activity the business engages in, and what business permits and licenses are required.
There are no organizational requirements for a partnership outside of what agreements and internal documents created by the partners for themselves.
Partnerships are considered extensions of the individual partners themselves, and they will pay taxes on profits from the partnerships under income and self-employment.
Disadvantages of a partnership
The disadvantages of using a partnership structure as a business include:
- Personal liability
Partners are personally liable for all debts and obligations of the partnership. If the partnership is ever sued, each partner can normally be held liable (along with their personal assets). There are different structures which allow partners to limit personal liability, such as a Limited Liability Partnership (LLP) or Limited Partnership (LP). However, some states require that at least one partner is liable for the entire partnership. The legal status, options and possibility for an LLP or LP vary from state to state. Most U.S. states have an LLP classification in their laws, but each have different rules on limiting personal liability of the partners. In these cases an LLC is usually regarded as a better option. LLPs are often used for businesses that are forbidden from registering as an LLC (e.g. law firms, architecture firms, accounting firms, and medical practices).
- Limited growth potential
Partnerships generally can only grow by adding more partners. Raising capital is much more difficult than with a corporation because partnerships cannot sell interests or ownership in the partnership, leaving loans or independent investors as the only options available to raise money. However, an investor in a partnership is also usually considered to be a partner, even if they have no responsibility or control over the partnership. An LP can be established to limit and investors liability in the partnership, but the rules for this structure vary from state to state.
Costs for a U.S. partnership
A General Partnership (GP) is the most basic structure in the U.S., and will be the default status your business is given if you do not register it otherwise. There are no formal startup costs for establishing your business as a GP, and the business will operate solely based on the agreements and contracts that you write to govern your business (certain business activities and industries will have their own regulations depending on which state you operate in).
Licensing and permit costs will be the same as any other business that engages in the same activity, regardless of the type of structure, whether a corporation or LLC.
Our services for establishing a U.S. partnership
A partnership is a good structure to choose if you want the maximum flexibility and freedom to run your business as you desire. As a full-service business and corporate law firm with U.S. and German counsel, we will evaluate your business plan and determine the most advantageous strategy to establish your business in the U.S.
As there are no formal startup costs or regulatory requirements (aside from licenses, business permits and U.S. tax identification number) for a U.S. partnership structure, the internal agreements and contracts will be the primary guide to how your business is run. The key to a successful partnership is having the right documents and contracts so you can start working and ensure your business will operate and grow according to your goals.
Our services include:
- Picking the right location for your business based on the local laws, and your goals, including registering the name you want, and the right type of partnership that fits your busines plan
- Negotiating and drafting executive internal documents, including Operating Agreements, Privacy Policies, Confidentiality and Non-Disclosure Agreements (NDA), and other internal documents
- Negotiating and drafting International Contracts for commercial and employee relationships, including Partnership Agreements, Franchise Agreements, Joint Venture Agreements, Master Agreements (for numerous commercial dealings), Service Agreements, Distribution Agreements, Sales Contracts, and Employment Agreements
- Protecting your business's Intellectual Property, including filing copyright and trademark registrations, and securing Intellectual Property Rights through the United States Patent and Trademark Office (USPTO) and Madrid Protocol
- Regulatory compliance with government offices concerning product and services licensing, as well as safety and disclosure requirements in applicable jurisdictions (i.e., where your business activity is)
- Securing U.S. business visas such as the E, the L and the O visas when required,
- Handling commercial leases or real estate acquisitions,
- Planning the best tax strategy to maximize your benefits under local (including all state sales tax) and international law, and obtain the correct tax identification number and registration status
- Obtaining the necessary licenses and permits to carry out all your business activities, as well as support to open bank accounts for your partnership
Your attorney for setting up a partnership in the U.S.
If you have a sincere interest to expand your business and enter the U.S. market, whether to establish a partnership or invest in the U.S., our team is ready to support you. We explain all requirements establishing a U.S. partnership and support you on all steps ahead. Our U.S. partnership attorneys can provide you with a consultation and ongoing legal services in German and English. Get in touch!
The easiest way to reach us is by e-mail (email@example.com) or by phone (+49 69 76 75 77 80). Tell us more about your U.S. business and we will offer a service package tailored to your particular needs.
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