Starting a Partnership in Pennsylvania? Key Steps to Protect Your Business and Relationships
Starting a business with someone you trust can be super exciting and full of possibilities. You might be looking forward to combining your skills, sharing responsibilities, and creating something meaningful together. However, as many entrepreneurs in Pennsylvania eventually discover, even the strongest partnerships can face trouble if people do not plan carefully from the beginning. If you are thinking about forming a partnership, it’s crucial that you lay the right foundation now to avoid disagreements and frustrations later.
At Cali Law, we have seen cases where business partners have amazing business ideas, but since they skipped some crucial steps when setting up the partnership, they ended up facing disputes, financial losses, or even litigation. You definitely do not want to start your business journey like that. As you take those exciting first steps, we want to guide you on what you should do now to protect your investment, your partnership, and even your personal relationship with your co-owner.
Choose the Right Type of Partnership
The first step when forming a business partnership is selecting the right business structure. Here are the main types of partnerships in Pennsylvania:
General Partnership (GP)
With a GP, all partners share management responsibilities and are personally liable for business debts. If there is no written agreement, Pennsylvania’s Uniform Partnership Act fills in the gaps.
Limited Partnership (LP)
An LP has at least one general partner who runs the business and at least one limited partner who puts in capital but does not handle daily tasks. The general partner is personally responsible for liabilities arising out of the partnership, whereas the limited partner enjoys limited liability. Limited partners are only liable up to their investment.
Limited Liability Partnership (LLP)
An LLP protects all partners from personal liability for wrongful or negligent actions of other partners while allowing them to participate in management.
Taking the time to choose the right business structure can help avoid future disagreements over roles, authority, and financial obligations. If you are unsure about which option suits you best, it might be a good idea to consult a Pennsylvania business formation attorney.
Draft a Partnership Agreement
A partnership agreement is a legally binding document that outlines the terms of your business relationship. While Pennsylvania law does not mandate written partnership agreements, not having a written contract can be a huge mistake. Why? You may ask. Without a written agreement, your business defaults to the state’s standard rules, and those rules may not align with your business or expectations.
An agreement can ensure your partnership runs smoothly and there are no issues that can ruin your business or personal relationships in the future. A well-drafted agreement should define, among other things:
Each partner’s roles and responsibilities
How much of the business each partner owns
How profits and losses will be shared
Decision-making authority
How disputes will be settled
What happens if a partner wants to leave the business or sell their share
Buyout procedures in the event of disability, death, or misconduct
At Cali Law Firm, our business law attorneys can help you ensure your partnership agreement is strong and enforceable. We can help you draft a contract that clarifies each partner’s role, rights, and obligations.
Register the Partnership (if Required)
Pennsylvania does not require all partnerships to be registered. General partnerships are formed automatically when two or more people operate a business for profit. On the other hand, LPs and LLPs must be registered with the Pennsylvania Department of State. These entities require a Certificate of Limited Partnership or Statement of Registration.
Even if yours is a General Partnership, it is advisable to file a fictitious name registration if the business will operate under a name other than the partners’ legal names. This registration is vital for protecting your business name and informing the public of who owns the business.
Additional steps to take in relation to registering your partnership include:
Obtaining an Employer Identification Number (EIN), which is necessary for banking and tax purposes.
Securing local licenses and permits. However, this is dependent on your business activity and location.
Establish Financial Protections From the Start
A vital step that many people ignore is putting in place strong financial practices. Money is a leading cause of disagreements between business partners. It’s crucial that you take practical steps to prevent these disputes from arising.
To prevent misunderstandings in the future, here are some steps you can take:
Open a dedicated business account to keep personal and business finances separate
Keep records of all capital contributions
Establish a clear method for tracking expenses
Create regular financial reporting habits
Implement Dispute-Prevention and Dispute-Resolution Strategies
The reality is that even the best partners can disagree. The important thing is that you are ready for those disagreements.
Partnership agreements can arise due to various reasons, including:
Unequal workloads
Unclear roles and responsibilities
Lack of clear communication
Disagreements over strategy
Profit distribution conflicts
Financial mismanagement
Breach of fiduciary duty
Your partnership agreement should include a clear plan for addressing disputes before they escalate into serious problems. For instance, you can include:
A mandatory communication step
Mediation or arbitration clauses
Exit or buyout procedures
Plan for Growth and Change
Businesses rarely remain the same forever. So, it is crucial to plan for the future. Long-term planning is among the most valuable steps to take early in the partnership, but unfortunately, it is one of the most overlooked. Plan how you will handle additional partners, location changes, a change of business model, and other future changes.
If you are looking to start a partnership in Pennsylvania, we want to help protect your business and relationships (both professional and personal). We want to help you start a well-structured partnership that can support your goals, strengthen your working relationship, and give your business the stability it needs to succeed long term. Our business formation attorneys at Cali Law are here to guide you through every step, from choosing the right partnership structure to drafting a clear, comprehensive agreement that truly reflects your vision. If you are ready to move forward with confidence, contact us today to schedule a consultation. Let us build a strong foundation for your future together.
