How to Convert a Sole Proprietorship to a Partnership in Maryland

By Elizabeth Rayne

In many cases, a business gets off the ground with the work of a single owner operating a sole proprietorship. As the company grows and becomes more profitable, additional owners often come into the picture, which can necessitate a restructuring of the business. In Maryland, new business registrations are handled by the Maryland Department of Assessments and Taxation. However, by law, neither sole proprietorships nor partnerships are required to register. Instead, the conversion process is handled through internal partnership agreements and by amending any existing licenses to include the names of the new owners.

In many cases, a business gets off the ground with the work of a single owner operating a sole proprietorship. As the company grows and becomes more profitable, additional owners often come into the picture, which can necessitate a restructuring of the business. In Maryland, new business registrations are handled by the Maryland Department of Assessments and Taxation. However, by law, neither sole proprietorships nor partnerships are required to register. Instead, the conversion process is handled through internal partnership agreements and by amending any existing licenses to include the names of the new owners.

Sole Proprietorship

A sole proprietorship is a business owned by an individual. The business owner is personally liable for the debts and responsibilities of the sole proprietorship. There is no legal distinction between the owner and the business, meaning that any property or contracts owned by the sole proprietorship are also possessed by the owner. In Maryland, a sole proprietorship may be formed without registering with the state, so long as the business is in the name of the owner. However, depending on the type of business, the state may require the sole proprietor to apply for business licenses.

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Partnership

Partnerships are similar to sole proprietorships, except that a partnership is owned and operated by two or more people instead of one individual. Partners are personally responsible for the debts of the business; at the same time, partners have complete control over how the partnership is managed. Like a sole proprietorship, partners do not need to register with the state to start a partnership under the names of the owners.

Business Conversion

Because both a sole proprietorship and a partnership can be formed without state registration, there is no need to make any sort of filing with the state to convert a sole proprietorship to a partnership. However, it might be tricky for a sole proprietor to begin sharing management duties with another individual. As a new partnership, you can draft a partnership agreement to establish the contractual arrangement between the parties. The partnership agreement may provide for how the business will be managed, who makes decisions, how profits will be distributed, and how the partnership may be dissolved.

State Registration and Taxes

If your sole proprietorship had any state or local registrations, such as professional or occupational licenses, or state tax registration, you must update the licenses to reflect your new business structure. Further, if you had a trade name registered for your sole proprietorship, you need to update the registration by adding the names of the new partners. Finally, if you had an Employer Identification Number (EIN) for your sole proprietorship, you must obtain a new EIN for the partnership.

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How to Set Up a Partnership in Virginia

References

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What Forms Need to Be Filed for a Sole Proprietorship?

A sole proprietorship is one method of organizing and operating a business. A sole proprietorship operates as an alter ego of the owner, not as an independent legal entity, giving the sole proprietor complete control of the business. Depending on your state, you may or may not need to file a form to create a sole proprietorship. However, you should contact the Secretary of State's office to determine the proper procedure. For example, the state of Indiana requires all sole proprietors to register with the Indiana Department of Revenue by submitting a Business Tax Application if the business sells products or food.

South Carolina Statutes for Dissolving a Partnership

Ideally, partnerships would only dissolve when the partners decide to close the business. However, South Carolina partnerships may dissolve in a number of other ways, apart from mutual agreement of the partners, and it is important for that partnerships are aware of such circumstances to avoid premature closure. Death or incapacity of a partner, unlawful activities or a court order may trigger dissolution.

How to Change Ownership From a Proprietorship to a Partnership

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.

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