How to Make an Equity Partnership

by Christopher Carter

An equity partnership comes into existence when two or more individuals decide to start a for-profit business venture. Equity partners have an ownership interest in the business and have a right to receive distributions from the business. This is in contrast to salaried partners who draw a salary from the business as opposed to a distribution. Partners of the business have unlimited liability for debts and obligations that accumulate while operating the company. There are no formation documents to file with the secretary or department of state to begin the business. An equity partnership needs a formal agreement to indicate the rules and regulations for operating the business.

Pick a name for the partnership. The partners of the business can use their last name for business purposes or use a "doing business as," also known as a fictitious business name. Register the fictitious business name with the city or county clerk's office located closest to where the partnership operates. The cost to register a fictitious business name will vary based on the city or county where the partnership operates.

Acquire an employer identification number from the Internal Revenue Service. Call the IRS Business and Specialty Tax line at 800-829-4933 or apply online using the IRS website (IRS.gov). These two methods provide a partnership with the quickest way to obtain an EIN. Provide the legal name and address of the business, indicate the structure of the company and describe the nature of the partnership's business activities. Communicate the name, address and social security number of an authorized member of the business. An EIN will be assigned to the partnership at the conclusion of the online application or telephone interview.

Draft a written partnership agreement. A partnership agreement contains the policies and procedures that partners and employees must adhere to. There are no specific guidelines to follow when creating a partnership agreement. Provide the purpose for creating the partnership and state when the business will come to an end. Write the amount invested in the business by each partner, the manner that profits get disbursed and communicate each partner's share of profits from the business. Indicate procedures for admitting new partners and policies for buying out departing partners. Include the signature of each partner and the date when the agreement was created.

Obtain licenses and permits needed to operate the business. The licenses and permits required to legally operate the business will vary based on the partnership's activities. For instance, a partnership that sells goods and services to the public must acquire a seller's permit and a sales and use tax license from the department of revenue in the state where the company operates. Partnerships that provide professional services, like an electrician or physician, must acquire the appropriate occupational license from the licensing board in the state where the business operates. Contact the city or county clerk's office where the partnership operates to ensure the company has all the necessary local licenses and permits needed to operate the business.

About the Author

Christopher Carter loves writing business, health and sports articles. He enjoys finding ways to communicate important information in a meaningful way to others. Carter earned his Bachelor of Science in accounting from Eastern Illinois University.

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