How to Create a General Partnership in Tennessee: A Beginner’s Guide

Forming a general partnership in Tennessee can be a great way to combine your skills, resources, and ideas to create a thriving business. In Tennessee, also known as The Volunteer State, general partnerships are relatively easy to establish, making them an attractive option for entrepreneurs who want to keep things simple and cost-effective.

This article will guide you through the essential steps to start a general partnership in Tennessee. From understanding the legal requirements and drafting a partnership agreement to registering your partnership and obtaining necessary permits, we’ll provide you with the necessary tools and insights to help you launch your business venture. Whether you’re opening a boutique retail store or a cutting-edge tech startup, this comprehensive guide will help you navigate the process of starting a general partnership in Tennessee.

What is General Partnership In Tennessee

It is a business structure where two or more people come together to form a jointly owned business. In the general partnership business, the partners agree upon sharing assets, responsibilities, profits, and liabilities (legal & financial). In a general partnership, Partners consent to carry potentially unlimited liability personally. Liabilities are not restricted as they would be, for example, in a limited liability partnership (LLP) or a limited liability company (LLC) structure. Unlike the LLCs, a partner, in this case, can be legally sued for any business debts, and a possibility of seizure of personal assets can occur.

Before you start setting up your general partnership, it is advised that you consult a legal person. They will know what is best for you and your business. You can always form an LLC instead of a general partnership to protect your personal assets from business debts.

– LLCBuddy Editorial Team

How to Create a General Partnership in Tennessee

To create a general partnership in Tennessee, you must follow the guidelines below: forming a business name, making a partnership agreement, requesting an EIN, getting a license and permit, getting a state-based tax ID, and opening a bank account.

Step 1: Choose a Business Name in Tennessee

Naming your business is one of the most crucial activities during the startup phase. Your general partnership name is the foundation for your brand in Tennessee and is what clients use to connect you to the products or services you offer. Legal procedures should be taken into account when choosing your partnership name. Choose a business name that will enable you to develop a strong brand identity without being hampered by irrelevant factors.

If you want to set up an LLC, there is a complete guide on Tennessee LLC name guidelines for a proper business name. Here are some guidelines you must follow while naming your general partnership-

• Name availability: The name should be available, and no other entity should have the same name in Tennessee.
• Trademarks
• Limit of restricted words that need a license in Tennessee

In Tennessee, if you register your general partnership business with the Tennessee Secretary of State, then the name you choose will be the company’s official name. On the contrary, unregistered general partnership businesses use the last name of all of their partners by default. For instance, if Selena Gomez and Hailey Beiber enter business together, the partnership name is “Gomez & Bieber” by default if unregistered. However, if you would like to form a business name under something more appropriate, such as “EJI Design and Build,” then you’ll need to file a “Doing Business As (DBA)” name with Tennessee SOS.

In Tennessee, if you do not wish to file your general partnership business right away but want to hold the name that you have decided on, then you can reserve your business name for 4 months. You must file a name reservation application with the SOS to keep the name.

Step 2: Make a Partnership Agreement

After you have chosen a business name for your general partnership, the next step would be making a partnership agreement in Tennessee. A partnership agreement is a legal contract that specifies how a for-profit company would operate when run by two or more people.

The partnership agreement specifies each partner’s roles within the company, their ownership stakes, and their share of profits and losses. Additionally, it discusses business management guidelines and potential contingencies that may arise, such as a partner’s passing or a partner’s decision to leave the partnership. A partnership agreement should include the following:

• Name of Partners
• The principal address of the partnership
• Purpose of the partnership
• Terms of the partnership
• Partnership start date and end date (if not for infinite time)
• Partnership dissolution terms (for finite partnership)
• Capital contribution of partners
• Share of Interest of Partners
• Profit distribution of partners (equal distribution by default, if not specifies any special condition)
• Salary distribution (if applicable)
• Partnership Management Terms
• Terms of Partnership Sale

These key factors must be considered when forming or creating a partnership agreement in Tennessee. In this way, all business partners will understand what this is about and how to proceed if the mentioned scenarios happen in Tennessee.

Without a Partnership Agreement, your company will often be subject to the general partnership default laws of Tennessee. The default laws in Tennessee might not be appropriate for your requirements. Hence, it is important to have a transparent agreement while forming a partnership.

Step 3: Request an EIN in Tennessee

After documenting the partnership agreement, you should get or request an Employer Identification Number (EIN). An EIN will serve as the tax ID for your general partnership. EIN can be obtained from the Internal Revenue Service (IRS). It is a 9-digit number similar to Social Security Number. EIN, however, is distinct from SSN. It is only used for business-related activities, particularly for submitting general taxes. The form must be completed and uploaded to the IRS website. Getting EIN is necessary whether you are opening an LLC in Tennessee, or a general partnership, or something else.

The application of an EIN in Tennessee can be through the following:

• Apply Online- You can apply for EIN online, which is the most desirable and fastest method for users.
• Apply by Fax- Another method of obtaining EIN is to fax Form SS-4 (PDF) after entering all the correct information to (855) 641-6935.
• Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is 4 weeks.
• Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN number, you can benefit in several ways. It will provide your general partnership with the final advantage necessary to operate fully without encountering legal or judicial issues. For more details about EIN for your business, you may check why you need EIN.

Step 4: License and Permit for General Partnership in Tennessee

Before your general partnership business operates in Tennessee, you must have a business license first. A business license is a document issued by a government agency that permits you to operate your business in the geographic region that that agency governs.

To legally operate your partnership, you must apply for a business license to Tennessee Secretary of State. In some states, you might need to obtain a Privilege License. Based on the business structure, you might need it. In Tennessee, partnership businesses do not need to get to obtain a privilege license. You might even need more than one license in Tennessee. Numerous general partnership licenses need to be filed and renewed regularly.

Step 5: Obtain Tennessee Tax ID Number

In Tennessee, to conduct a business, you must comply with the Tennessee Department of Revenue. If you have a general partnership in Tennessee, you must obtain the Tennessee Tax ID number from Tennessee Department of Revenue. Your partnership business must pay state taxes (if applicable).

Step 6: Open a Bank Account

Once you have filed and received your general partnership license, you should now open a bank account since you will use this account for yourself, your clients, and your employees.

Your business dealings in Tennessee might be simpler with a US business bank account because it boosts your company’s legitimacy and liquidity. Most banks demand an EIN for creating a business bank account for firms other than sole proprietorships. Also, keeping separate finances helps you avoid combining personal and professional finances.

Example of General Partnership in Tennessee

Individuals looking to collaborate and numerous kinds of service providers have chosen general partnerships as their preferred business entity. That’s frequently because of its simple design, low price, and simplicity of setup. Some general partnership examples include:

• Providing professional services (architectural firms, medical clinics, etc.)
• Selling goods at retail
• Opening a restaurant
• Business Consulting

General partnerships are also formed by partners who are spouses or other family members who want to operate a business together.

Important Information

Maintaining Business License in Tennessee

Now that you have established your general partnership, you must maintain or renew your business license every now and then. Make time to check the status of your licenses at least once per year. Then, you can keep from missing anything significant. If there are any issues, you can address them.

Paying your Taxes in Tennessee

Even if you have established your general partnership in Tennessee, pay your taxes and keep everything up to date so you won’t pay any penalty. Tennessee tax information will help you with what to pay before or during the operation of your professional corporation. You must check with Tennessee Department of Revenue for more details.

Advantages of General Partnership in Tennessee

• Foundation only requires two people: Forming a general partnership doesn’t need many people to operate. You can form a general partnership with a partner in mind and a business plan. It can be a group of friends or colleagues, a family member, or a spouse and wife partnership.
• Equal Rights: Everyone is granted equal rights when a business is founded using a general partnership; each partner is free to express their ideas and choose what is best for the company’s success.
• Management Option: One of the advantages of joining a general partnership is the opportunity to select the finest management options for the company. For this reason, large partnerships should draft an agreement describing each partner’s responsibilities inside the business. As a result, each partner’s leadership abilities are enhanced.
• Flexibility: General Partnership is the basic form of a business structure since it can be converted into any business entity, such as LLC. If you have flexibility in applying for an LLC in Tennessee, you will have default rules set by law, and you need to have an operating agreement for this.
• Pass-through taxation: The pass-through tax structure will make the general partnership business not pay twice the tax. Due to this structure, most start-ups and entrepreneurs in Tennessee apply for a GP or LLC. And one of the main advantages of a general partnership is that partners don’t have to pay for the losses collectively.

FAQs

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Why Create General Partnership Tennessee is So Important

One of the primary reasons why creating a general partnership in Tennessee is so important is the flexibility it offers to partners. Unlike other business structures that involve complex regulations and formal procedures, general partnerships are relatively easy to form and operate. Partners have the freedom to establish their governance structure, profit-sharing arrangements, and decision-making processes according to their mutual agreement. This flexibility is especially valuable for partners who want to maintain control over their business without being burdened by excessive legal and administrative requirements.

Another key benefit of creating a general partnership in Tennessee is the shared liability among partners. In a general partnership, partners assume joint and several liability for the debts and obligations of the business. While this may seem intimidating at first, it also means that partners can pool their resources and share the risks associated with running a business. By spreading out the liability among partners, each individual may be better protected from the potential financial repercussions of business failures or legal disputes.

General partnerships in Tennessee also offer tax advantages to partners. Unlike corporations, general partnerships are not subject to double taxation, where profits are taxed at both the entity and individual levels. Instead, partners report their share of business income and losses on their personal tax returns, allowing them to take advantage of pass-through taxation. This can result in a lower overall tax liability for partners, making a general partnership an attractive option for small businesses looking to maximize their after-tax profits.

Furthermore, creating a general partnership in Tennessee can enhance the credibility and visibility of a business. By formalizing their relationship through a partnership agreement and registering with the state, partners can signal to customers, suppliers, and investors that they are committed to operating transparently and ethically. This can help build trust and confidence in the business, leading to increased opportunities for growth and success.

In conclusion, creating a general partnership in Tennessee is a critical step for entrepreneurs and small business owners looking to collaborate effectively and achieve their business objectives. The flexibility, shared liability, tax advantages, and enhanced credibility associated with general partnerships make them a valuable business structure for partners looking to navigate the competitive business environment in Tennessee. By understanding the importance of creating a general partnership, partners can position themselves for long-term success and sustainability in the dynamic business landscape of the state.

Conclusion

In conclusion, starting a general partnership in Tennessee may effectively combine resources, expertise, and creativity to achieve your mutual business goals. By understanding the legal requirements, drafting a thorough partnership agreement, and registering your partnership, you’ll be well on your way to a successful collaboration. As you embark on this exciting journey, remember to maintain open communication and stay committed to the shared vision that inspired your partnership in the first place.