How to Change a Sole Proprietorship to a Partnership When One Partner Is in a Different State

By Bryan Driscoll, J.D.

How to Change a Sole Proprietorship to a Partnership When One Partner Is in a Different State

By Bryan Driscoll, J.D.

Converting a sole proprietorship to a partnership is a simple process. If you've been operating your business as a sole proprietor and are now looking to bring on a partner, you can quickly alter your business structure.

When considering a change in your business structure, a question many people have centers around the physical location of the partners. General partnerships do not require the partners to reside in the same state. As a result, your partnership may exist in any state, though there are other things to consider.


What is the Difference Between a Sole Proprietorship and a Partnership?

A sole proprietorship is the default business structure that is used if you create a business, but file no paperwork. Therefore, you are said to be operating as a sole proprietor.

A partnership, however, is a more formal business structure that is set up by two people. While there is little paperwork involved when forming a partnership, there are in fact other items to consider, such as where to register and how the business will be managed by the partners.

How to Transfer a Sole Proprietorship to a Partnership

Transferring from a sole proprietorship to a partnership is somewhat misleading. Because a sole proprietorship requires no formal registration or creation process, there is no need to dissolve or transfer the sole proprietorship before creating a partnership. Instead, you simply create a partnership as you normally would.

You start by determining the state in which you want to register your partnership. This could be the state you live in, the state your partner lives in, or the state where most your business will occur.

Then you'll choose your partnership name. In most states, a partnership name must be the names of the actual partners. But you can also register a "doing business as" (DBA) name. This might be a good idea if you've been operating as a sole proprietor for years with a good customer base, and wish to continue using your sole proprietor name.

Registering your partnership with the Secretary of State, and paying the applicable filing fee, is required. This is an important step because it lets the state know you're conducting business and provides a formal record of your partnership.

Depending on the type of business you're in, your state may require you to have a license or permit. For example, most states require a business license, but if you operate a restaurant, for example, you'll be required to obtain additional licenses. Be sure to check the applicable state laws and regulations for specific details.

Finally, you must get an employer identification number (EIN). All formally registered businesses are required to obtain an EIN from the IRS. This process will take less than five minutes and can be completed online.

Making the determination to switch your business from a sole proprietorship to a partnership is not an easy decision to make. But once you determine that it's the right choice, creating a partnership is a simple process you can do.

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