January 5, 2008 11:15 AM EST
I`ll assume there are some reasons why you`ve settled on forming a partnership vs. an LLC for your enterprise. The decision about legal form of a business - sole proprietor, partnership, LLC, S-Corporation, or C-Corporation, is usually driven by a variety of legal and tax considerations. While partnerships used to be very common they`ve been replaced for the most part by LLC`s because of the additional legal protections and tax advantages of an LLC.
If you`ve reviewed all this and settled on partnership as the most preferable form of business ownership, then here`s what you need to have. First, you need to have a written partnership agreement. It doesn`t need to be an overly complex document. It should give the name and legal address of the partnership, name the partners, give the purpose of the partnership, and how profits will be divided.
What you are talking about is a general partnership. That means that all partners are liable for the acts of the other partners. It also means that you have no legal protection if the business is sued. Your personal assets will be exposed to a lawsuit.
You`ll need to check with your bank to know about their requirements for opening an account but most likely they will want to see your written partnership agreement. Your state will may require you to register the name of your partnership as a ficticious name - e.g. you call your business Smith and Company - depending on the nature of the business.
Your cash contributions to the partnership will be reported to the IRS on Form 1065. The reason they need to be reported is because you will be subject to the "at risk" rules which limit the amount of deductions you can take if the business has losses. You can`t deduct any more than the amount you have at risk and your capital contribution is part of that calculation.
Each partner can withdraw funds on their partnership account but this reduces the amount of capital they have "at risk". Taxes are paid by the individual partner on their share of taxable net income of the business partnership, not the amount of money drawn from the bank account.
Getting access to the money on the partnership bank account isn`t a problem if you both are signers on the bank account. Yes, you can put the money in your personal account.
I think your question may stem from a misunderstanding about the taxability of partnerships. The partnership never pays income taxes. It`s you - the individual partners - who pay the income tax. The partnership is simply a conduit to collect revenues and pay expenses but the net results of that activity will wind up on your individual income tax return.
You may want to seek some guidance from a CPA or a tax professional before you embark on your enterprise. In particular you want advice about the suitability of a partnership to your particular business. This site has information about the different forms of business ownership and the relative advantages and disadvantages of each.
Regional Vice President
Equity Corporate Finance, Inc.
888-498-8999 ext. 109