Business formation and planning in New York can be complicated, no matter which type of structure you choose. That said, some types are more complicated than others.
It can be extraordinarily complicated to start a corporation. These business entities provide great advantages to their owners, but they also have extensive legal and financial requirements.
A much simpler type of business entity is a partnership.
Benefits to forming a partnership
Put simply, the term “partnership” applies to the tax status of a business entity. Rather than the business itself being responsible for taxes, the tax liability is passed through to the owners, who are known as the partners.
If you choose a general partnership structure for your business, you and your partners will share the responsibility of managing the business, as well as the profits and debts of the business. A limited partnership typically has one general partner to manage the business and take on personal liability for the debts of the business, and limited partners who contribute capital but do not manage the business. Partnerships use pass-through taxation, allowing profits and losses to pass through the business to the partners’ personal tax returns.
How to form a partnership in New York
The process to form a partnership typically begins with you and your partners choosing a name for your partnership, registering it with the state, and acquiring a Federal Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
You and your business partners will then draft and sign a partnership agreement. Your partnership agreement will specify how your business will run. Specifically, your agreement may address:
- Each partner’s responsibilities
- The allocation of profits and losses
- How decisions will be made
- How disputes will be resolved
- The dissolution process (what happens if one partner withdraws)
It is in your best interest to make sure your partnership agreement covers all the most important issues that may arise when running your business.