How to Change Ownership From a Proprietorship to a Partnership

By David Carnes

If you are a sole proprietor, it is easy to form a partnership -- simply agree with at least one other person to do business together and share profits and losses. Your company will automatically be treated as a general partnership for legal purposes, even with nothing more than a handshake to seal the agreement. The resulting partnership could face significant legal liability, however, unless you resolve certain matters and create a written partnership agreement.

If you are a sole proprietor, it is easy to form a partnership -- simply agree with at least one other person to do business together and share profits and losses. Your company will automatically be treated as a general partnership for legal purposes, even with nothing more than a handshake to seal the agreement. The resulting partnership could face significant legal liability, however, unless you resolve certain matters and create a written partnership agreement.

Step 1

Invite partners who are capable of making contributions to your business. These contributions may be tangible contributions such as money or equipment, or intangible contributions such as expertise or business connections.

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Step 2

Select a name for the partnership. Make sure that it is unique by searching state records to see if an identical or confusingly similar business name is in use. The website of the secretary of state of your state may have an online name search function. Some states require a general partnership's official name to include the names of the partners.

Step 3

Negotiate the basic terms of the partnership with the other partners. Important issues include partner contributions, the distribution of profits and losses, voting rights, the departure of partners, the entry of new partners, the authority of each partner, the partnership management structure and dispute resolution procedures.

Step 4

Draft a partnership agreement reflecting the terms you negotiated with the other partners, and have all partners sign it. The partnership agreement does not have to be filed with state or federal authorities. Without a partnership agreement, a court will apply state law default rules to resolve disputes among the partners.

Step 5

Select a fictitious business name and register it with your state's secretary of state, if you wish to do business under a name other than the name of the partnership.

Step 6

Obtain any required additional licenses, if you are expanding your line of business after forming the partnership. If your sole proprietorship required licenses to operate, you must have them re-issued in the name of the partnership to continue to use them.

Step 7

File formation documents with your state's secretary of state if you wish to form a limited partnership, limited liability partnership or a similar limited liability entity. Pay any requisite fees.

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References

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General Partnership Laws & Regulations

A partnership is a form of business entity owned by more than one partner. The key consideration is that the business is conducted with the aim of making a profit. Most partners enter into a formal written partnership agreement, setting out their rights and obligations, but a partnership can operate effectively on the basis of a handshake. Each state has its own laws relating to partnerships but the general principles remain the same across the United States.

Importance of Partnership Agreement

A legal partnership is formed automatically whenever two or more parties -- either individuals or organizations -- agree to do business together and share profits and losses. Partnerships are governed by state law, and these laws vary somewhat from state to state. You don't need to register your partnership with the state government for partnership law to apply.

Steps for Dissolving a Partnership in South Carolina

Knowing the process for ending a general partnership can help partners effectively wrap up business affairs when it comes time. In South Carolina, the filing of dissolution paperwork with the state is generally not required. However, it is a good idea for partners to execute a written agreement regarding distribution of company assets and payment of creditors in the event of dissolution. Additional steps, including cancellation of professional licenses and permits as well as satisfaction of tax liabilities, may also be involved.

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