Forming a Business Partnership in Roanoke, VA
Posted by: Copenhaver, Ellet & Derrico
A business partnership is one of the most basic types of business association, and also one of the oldest. One of the most surprising rules regarding this association is that you can be in a legal partnership with another person without having taken any formal action to organize or register the partnership. Anytime you engage in a business activity with one or more other people, and you share a common goal and profits, a court could find that you have a partnership.
For this reason, it’s essential that you be proactive, and take steps to make your partnership formal. If you have an unregistered general partnership, you and any other partners share any liabilities that result from your business activities. This means that your personal finances could be at risk without you knowing it. At Copenhaver, Ellett & Derrico, our business formation lawyers can review your business, and help you find ways to limit your personal liability by registering as a limited liability partnership, or forming a corporation or limited liability company. We can also formalize in writing you and your partners’ understandings in a formal agreement.
Understanding the Steps to Forming a Partnership
Virginia law recognizes three types of partnership:
- General partnerships
- Limited partnerships (LPs)
- Limited liability partnerships (LLPs)
In a general partnership, which may exist without any formal action taken on your part, all of the partners share the profits, management, and liabilities of the business. But in a limited partnership, it’s possible to shield some partners from business liabilities by naming them limited partners. In a limited partnership, only general partners share management responsibilities and the liabilities of the business. The limited partners are still entitled to their share of profits without being exposed to the liabilities.
The partnership association that most effectively shields the partners from liability is the limited liability partnership. In this association, all partners are equally protected from being personally liable for the debts of the business. However, a court can still hold partners of an LLP personally liable in cases where there is evidence of misconduct or a breach of fiduciary duty. Whether you want to form a limited partnership or limited liability partnership or other entity, you should follow these steps:
Choose a business name.
When selecting the name of your business, make sure another business has not already trademarked the one you choose.
Register with the Commonwealth.
In Virginia, you must file a certificate with the State Corporate Commission (SCC), which will include the name of your partnership, its address, the identity of its registered agent, and the names and addresses of all of its partners. There is a $100 initial registration fee, and then a yearly $100 fee that you must pay along with a continuation report each year. If you fail to file this report, then the partnership will lose its limited liability status.
Write and sign a partnership agreement.
The partnership agreement will outline the rights and responsibilities of the partners, and the terms for liquidating the business upon its end. Although this is not necessary for your partnership to exist legally, it will help your business run smoothly and avoid internal disputes.
Request tax numbers.
If your partnership will have employees, you’ll need to request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). If these employees work in Virginia, you’ll also need to apply for an account number with the Virginia Employment Commission (VEC). If you have three or more employees, you should also sign up for workers’ compensation insurance from the VEC.
Open a bank account for your partnership.
Once you have an EIN and your partnership agreement or a copy of your SSC filing, you can open a bank account in your partnership’s name.
Apply for licenses.
Depending on the nature of your business, you may have to apply for local permits and Commonwealth licenses to operate legally. In some cases, the permitting or licensing process can be grueling, so make sure to plan accordingly.
Having a good accountant and an experienced attorney can make the process of establishing and running a partnership much easier. Hiring outside professionals to assist with tax, accounting, licensing, and legal issues is an extra cost for your business, but it will significantly lower your long-term risks, and give you peace of mind.
Do You Have Questions About Forming a Business Partnership? Contact Us Today
If you want to enter into a formal partnership with your business associates, a carefully worded agreement can ensure that your venture succeeds. Don’t assume that your friendship and good will can keep your partnership together. An effective partnership agreement may seem like a lengthy, complex, and unnecessary legal document, but it could save you from severe financial hardship and larger attorneys’ fees in the future. If you need help on founding a business partnership in Virginia, call Copenhaver, Ellett & Derrico today at (540) 655-1854, or reach out online to schedule your consultation.