To start a business with a partner, you pick a legal structure, file formation documents with your state, write a partnership agreement, get a federal Employer Identification Number, and set up the tax reporting the IRS expects from a partnership. The paperwork is not the hard part. The documents partners skip — especially the written agreement — cause more trouble than the ones they file, and the federal partnership return carries a late penalty of $255 per partner per month that most new partners never see coming.
Pick the Entity Structure First
Every later filing depends on what kind of entity you form, so decide this before you fill out anything. Four structures cover almost every two-or-more-owner business.
General Partnership
Two or more people running a business together for profit. Every partner shares management equally by default, and every partner is personally liable for the full debts of the business. If your partner signs a ruinous lease or gets sued over something that happened on the job, creditors can reach your personal assets. Some states don’t require a filing to create one. If you and a friend start selling a product together and split the revenue, you may already be in a general partnership whether you meant to form one or not.
Limited Partnership (LP)
An LP splits partners into two roles. At least one general partner runs the business and takes on full personal liability. Limited partners put in money but stay out of daily operations, and in exchange they risk only what they invested. Forming an LP requires filing a certificate of limited partnership with the state.
Limited Liability Partnership (LLP)
An LLP protects each partner from personal responsibility for the negligence or misconduct of the other partners. You are still liable for your own actions, and in many states for general business debts, but a malpractice claim against your partner will not wipe out your savings. LLPs are common among attorneys, accountants, and architects.
Multi-Member LLC
A multi-member limited liability company is a separate legal entity from its owners. Unlike a partnership, where partners can be personally liable, an LLC generally shields all members from the company’s debts and lawsuits. Members can manage the LLC themselves or appoint managers. The IRS treats a multi-member LLC as a partnership by default for tax purposes, so the federal filing obligations below apply the same way.
File the Formation Documents With Your State
Once you’ve picked the structure, the state filing is mostly data entry. Three pieces have to be nailed down first.
Clear the Name
Your business name has to be distinguishable from other registered entities in the state. Search your Secretary of State’s business database before you file. Most states let you reserve a name for a set period while you prepare documents, usually for a small fee. The name has to include a designator identifying the entity type, like “LP,” “LLP,” or “LLC.” If you plan to operate under a different name, you’ll also need to file a fictitious business name statement (a DBA), which some jurisdictions handle at the county level and a handful of states still require you to publish in a local newspaper.
Appoint a Registered Agent
Every entity has to name a registered agent in its formation documents. This is the person or company designated to receive lawsuits, subpoenas, and official government notices on the business’s behalf. The agent needs a physical street address in the state of formation and must be available during normal business hours. A P.O. Box doesn’t work, because a process server has to hand-deliver documents in person. A missed delivery can mean a default judgment in a lawsuit you never knew about, or administrative dissolution by the state.
File the Right Formation Document
The document depends on the structure. LPs file a certificate of limited partnership. LLCs file articles of organization. LLPs typically file a registration statement. General partnerships in many states don’t need to file a formation document at all, though filing a DBA creates a public record that helps with banking, contracts, and credibility.
The forms live on your Secretary of State’s website and ask for the organizers’ and general partners’ names and addresses, the principal office address, and the registered agent. You’ll also enter a business purpose statement. Broad language along the lines of “any lawful business activity” is standard; a narrow purpose can box you in later. Filing fees generally run from around $50 to several hundred dollars depending on the state and entity type. Most states accept online submissions and process filings within a few business days, with expedited processing available for an extra fee. Once the state approves the filing, you’ll get a certificate of formation or a stamped copy of your documents confirming the business legally exists.
Write the Partnership Agreement Before You Need It
A partnership agreement is not filed with the state, but it is the most important document in the business. Without one, state default rules govern, and those defaults rarely match what partners actually intend. Under most states’ versions of the Uniform Partnership Act, the defaults include equal profit splits regardless of who invested more, equal management authority for every partner, and no salary for any partner’s work. If that surprises you, you need a written agreement that says otherwise.
Contributions and Profit Sharing
Spell out exactly what each partner is contributing at the start — cash, equipment, intellectual property, or services. Non-cash contributions should be appraised and assigned a dollar value at formation. Those contributions determine each partner’s equity stake, which drives profit and loss allocation. Profit-sharing ratios don’t have to match ownership percentages; if one partner contributes capital while the other contributes work, the agreement can reflect that. Also address the timing of distributions, how much the business holds back for operating expenses, and whether partners can take draws against future earnings.
Authority and Voting
Define who can sign contracts, hire employees, open credit lines, and make purchases. Separate routine decisions any partner can make alone from major decisions that require a vote. Admitting a new partner, selling the business, taking on significant debt, or changing direction are the kinds of calls that typically require unanimous consent. Without these guardrails, any general partner can legally bind the entire business to obligations the others never agreed to.
Dispute Resolution
Partner disputes that end up in court are expensive and often destroy the business. The agreement should require mediation first, with binding arbitration if mediation fails. Specify the rules that will govern the process — most clauses reference a recognized provider like the American Arbitration Association — and who pays for it.
Exit and Buy-Sell Terms
Every partnership ends eventually, whether through a planned exit, retirement, disability, death, or a falling out. Buy-sell provisions dictate what happens when a partner leaves: whether the remaining partners have the right of first refusal, and how the departing partner’s share gets valued. A pre-agreed valuation method — a periodic fixed price, an independent appraisal, or a formula tied to earnings — avoids the alternative of each side hiring competing appraisers and fighting over the number in court. Dissolution terms cover how assets get liquidated, how creditors get paid, and how anything left over gets distributed.
Get a Federal EIN
Once the state approves your filing, apply to the IRS for an Employer Identification Number. It’s the business equivalent of a Social Security number, and you’ll need it to open a business bank account, hire employees, and file federal tax returns. The application uses Form SS-4, is free, and can be completed online, with the number issued immediately upon approval.1Internal Revenue Service. Get an Employer Identification Number The IRS also accepts applications by phone, fax, or mail through Form SS-4 if you can’t apply online.2Internal Revenue Service. About Form SS-4, Application for Employer Identification Number (EIN) Ignore third-party sites that charge for the service. The IRS warns that you should never have to pay a fee for an EIN.
Set Up the Tax Filings You Now Owe
Partnerships don’t pay federal income tax themselves. Income, deductions, and credits flow through to the individual partners, who report their shares on their personal returns. But the partnership still has filing obligations, and the penalties for missing them are what trip up most new partners.
Form 1065 and Schedule K-1
The partnership files Form 1065 (U.S. Return of Partnership Income) every year. For calendar-year partnerships the deadline is March 15. For the 2025 tax year, the deadline is March 16, 2026, because March 15 is a Sunday.3Internal Revenue Service. Instructions for Form 1065 (2025) Filing Form 7004 before the deadline grants an automatic six-month extension.4Internal Revenue Service. Instructions for Form 7004 (12/2025) Along with the 1065, the partnership prepares a Schedule K-1 for each partner showing that partner’s share of income, losses, deductions, and credits. Copies go to the IRS and to each partner, who uses the K-1 to complete their personal return.5Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065)
The Late Filing Penalty to Watch
Filing Form 1065 late without an extension triggers a penalty of $255 per partner for each month or partial month the return is overdue, up to 12 months.6Internal Revenue Service. Failure to File Penalty A three-partner business that files four months late owes $3,060. A five-partner business that forgets entirely faces $15,300. The penalty applies even though the partnership itself owes no income tax.
Self-Employment Tax and Quarterly Payments
General partners owe self-employment tax on their share of partnership income, covering Social Security and Medicare at a combined 15.3% on net self-employment earnings.7Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax Limited partners in an LP generally owe self-employment tax only on guaranteed payments for services, not on their share of partnership profits — one reason some businesses pick the LP structure.
Because no employer withholds taxes from partnership income, each partner has to make quarterly estimated tax payments covering both income tax and self-employment tax, using Form 1040-ES.8Internal Revenue Service. Estimated Taxes Missing them triggers an underpayment penalty unless you owe less than $1,000 at filing, or you paid at least 90% of your current-year tax or 100% of last year’s tax (110% if your prior-year adjusted gross income exceeded $150,000).9Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
Keep the Business in Good Standing
Formation is the start, not the finish. A handful of ongoing filings keep the entity alive.
Annual Reports
Most states require registered entities to file an annual or biennial report updating the state on the registered agent, principal address, and partner or manager names. Fees range from nothing to several hundred dollars. Missing the deadline brings late penalties and, eventually, administrative dissolution.
Local Licenses and Permits
State registration doesn’t replace local licensing. Many cities and counties require a general business license or occupational permit, and businesses involving food service, health and safety, construction, or public assembly often need additional permits from local health departments or building authorities. Contact your city or county clerk early, since some permits take weeks and operating without one can mean fines or forced closure.
Operating Across State Lines
If your partnership does business in a state other than where it was formed, you may need to register as a “foreign” entity there. Foreign in this context means formed elsewhere, not international. States look at factors like a physical location, employees, or regularly accepting orders in their jurisdiction. A bank account in another state or interstate commerce alone doesn’t usually trigger the requirement. Registration involves filing paperwork, paying fees, and naming a registered agent in that state. Ignoring the requirement can bring fines, inability to enforce contracts in that state’s courts, and back taxes.
Beneficial Ownership Reporting
Under the Corporate Transparency Act, businesses were originally required to report their beneficial owners to the Financial Crimes Enforcement Network. In March 2025, FinCEN issued an interim final rule removing that requirement for all entities created in the United States.10Financial Crimes Enforcement Network. FinCEN Removes Beneficial Ownership Reporting Requirements for US Companies and US Persons As of early 2026, domestic partnerships, LLCs, and corporations are exempt. Only foreign-formed entities registered to do business in the U.S. still have to file. FinCEN said it would issue a final rule, so check for updates if you’re forming later in the year.11Federal Register. Beneficial Ownership Information Reporting Requirement Revision and Deadline Extension