Does a Partnership Need to Be Registered?

Does a partnership need to be registered? Yes, as a general rule, a partnership does need to be registered.4 min read

Does a partnership need to be registered? Yes, as a general rule, a partnership does need to be registered. However, there are exceptions, and it also depends on the kind of partnership you're talking about. Some states require that business partnerships be registered, while others don't. It also depends on how you define "partnership," because not all partnerships are business partnerships.

Business Partnerships

Once you become involved in a business partnership, you should hire a lawyer to help you create a legally binding partnership contract. The contract will outline how profits and losses should be distributed, how the company should be dissolved if that ever becomes necessary, how to settle disputes, how to transfer ownership, and so on.

Generally, partners should have individual accounts that enable them to (a) invest in the business and (b) earn from it. Such accounts are called "capital" and "drawing" accounts respectively. When a partner takes a draw from the business, the overall financial value of the business is reduced. Therefore, it's important to keep records of expenses to minimize partner mistrust.

There are three types of business partnerships:

  • General partnerships, which require assets and liabilities to be shared equally among partners. In general partnerships, partners share profits and losses according to predefined investment percentages as legally agreed upon by the partners.
  • Limited partnerships, which permit certain partners to own limited liability based on proportions of investment
  • Joint ventures, which operate like general partnerships, are agreements reached by partners for a single project or a limited time.

When filing taxes, each partner is required to turn in a personal tax return. The reason is that partners are not considered employees of their partnerships. Instead, they're seen as self-employed.

General Partnerships

To create a general partnership, written documents are not compulsory. If two or more people agree to go into a business as partners for the purpose of attaining monetary rewards, then a general partnership has been formed by them. That means they may be responsible for the legal obligations of the business such as debts and liabilities, even if there's no officially documented agreement.

However, Washington, D.C. suggests the filing of a “State of Partnership Authority” to register a general partnership with the Department of Consumer and Regulatory Affairs. This registration costs $150, and you can find the form at http://dcra.dc.gov/dcra/lib/dcra/information/forms_docs/pdf/spagp.pdf.

Registered Agent and Registered Office

If a general partnership in Washington, D.C. decides to register, it has to also register a registered agent and a registered office within Washington. For the record, the registered office doesn't have to be the primary place of business operations. The entity that is assigned to receive formal government notices on behalf of the business is its registered agent.

A registered agent can be a person or a corporate entity that is resident in Washington. The agent doesn't have to be a partner. Usually, third-party service providers will act as agent and provide a registered office for a fee. You can find the registered agent consent form at http://dcra.dc.gov/dcra/lib/dcra/information/forms_docs/pdf/wconsent.pdf.

Registering a Partnership

Depending on where your company will be doing business, you may have to register a fictitious business name, also known as a DBA (doing business as). Some states and local governments require business name registration, and others don't. Therefore, you should find out what the requirements are for your city, county, and state. Usually, the secretary of state's office can give you this information. Otherwise, check with your city and/or county clerk.

You should inquire about the need to use a fictitious business name for a general partnership because there might be requirements for an LLC, a corporation, and a limited partnership that aren't applicable to a general partnership.

The major reason for compulsory registration is consumer protection. The partners of a general partnership are individually responsible for partnership obligations. Therefore, registration is needed to keep the partners from evading their personal responsibilities under the cover of a business name.

Consequences of Not Registering

Failing to register a business name when you're required to do so can lead to undesirable results. Some states consider it a criminal offense. Some other possible consequences of failing to register a business name are:

  • Your business won't be granted access to the courts if it needs to take a legal action.
  • You won't be able to use the business name for advertisements.
  • You won't be able to open and operate a bank account in the name of the business.

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