General Partnerships in Delaware

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When you start a business in Delaware, you can choose from a few different formal business structures.

The structure options are limited by how many people operate the business (whether it’s one person, or more than one).

And the structure you choose determines how the business will be taxed, how much of the business’s debts you are personally liable for, and how much paperwork and registration you need to complete.

We explored the Delaware Secretary of State website, reviewed all the forms, and examined the Code of Delaware to put together an extensive guide on starting a Delaware General Partnership.

We will also describe the primary differences between Sole Proprietorships, Partnerships, and LLCs.

You should really form an LLC instead. Filing a General Partnership in Delaware is actually more expensive than starting an LLC, and requires exactly the same amount of paperwork and filing steps. It doesn’t make sense to start a General Partnership and lose the asset protection you would get from an LLC.

Types of Business Structures

Sole Proprietorship

If you start a business by yourself (without a business partner), the easiest structure to use is a Sole Proprietorship. As the business owner (aka the “sole proprietor”), all the business’s profits are yours. But, you are also responsible for all the business’s debts and liabilities.

Your Sole Proprietorship business will not be taxed as a separate legal entity. Instead, all business profits are considered your personal profits. And this profit is taxed at your normal tax rate.

Instead of a Sole Proprietorship, you can also operate as a Single-Member LLC or as a Corporation. However, you can’t form a Partnership unless your business has more than one owner.

General Partnership

If you’re starting a business with one or more partners, then the simplest structure available is a General Partnership.

Matt Horwitz, founder of LLC University®Pro tip: General Partnerships don’t protect your personal assets. On the other hand, if you form an LLC, your personal assets are protected in the event of a lawsuit. Check out Partnership vs. LLC below for more information.

A General Partnership is a formal agreement between two or more people to operate a business together. The partners share the business assets, profits, and debts.

Delaware’s Revised Uniform Partnership Act (Title 6, Chapter 15 of the Delaware Code) governs General Partnerships in the state. General Partnerships are formed under the rules in Delaware Code, Section 15-202.

Other Types of Partnerships

You can also structure your Delaware business as one of these other types of partnerships:

  • Limited Partnerships
  • Limited Liability Partnerships
  • Limited Liability Limited Partnerships

However, these are specialized partnerships, commonly used to raise capital or structure a law firm. For that reason, we’ll focus on General Partnerships in this article.

Note: LLC University® does not provide legal advice. This article is for information only, and doesn’t offer legal advice for your specific business situation.

How to start a General Partnership in Delaware

Like an LLC or corporation, you must file formation paperwork with the state to start a General Partnership in Delaware.

And there are two other important business items you must get:

EIN Number. Your General Partnership must file a Partnership Return with the IRS each year, so you must obtain an EIN (Federal Employer Identification Number). You and each of your partners must also file your personal taxes, which will include information about the General Partnership’s income and expenses.

Business License. You must also research business license and permit requirements. Your Delaware General Partnership may need a license or permit based on where it operates and what industry it’s in.

If you want to make the General Partnership more formal (and in order to open a business bank account), you should complete these extra steps:

  • Select a business name and file a DBA for that name
  • Draft and sign a Partnership Agreement to set out the responsibilities and ownership percentage of each partner

Example: How to start a General Partnership

Omar and Jasmine want to start a design business together. They sit down one evening and discuss what services they will offer, and for what prices.

They name their business “Jasmar Designs, G.P.” (G.P. stands for General Partnership).

Omar files the Statement of Existence of a Delaware Partnership, and pays the $200 filing fee. Now their General Partnership officially exists!

The next day, Omar downloads the LLC University® General Partnership Agreement Template (see below). Omar and Jasmine complete the agreement and sign it.

Jasmine goes to the IRS website and obtains an EIN for Jasmar Designs, G.P.

A few days later, Jasmine files the paperwork to claim their DBA of “Jasmar Designs, G.P.” with the Delaware Secretary of State.

Omar applies for a business license from the Delaware Division of Revenue. Then Jasmar Designs, G.P. must check with their local government in Christiana, Delaware to see if they need any other local business license or permit to operate.

Next, we’ll discuss the pros and cons of General Partnerships. If you’d rather just get started and create your General Partnership, you can jump to our detailed step-by-step guide.

General Partnership: Advantages and Disadvantages

Advantages of a General Partnership

The primary advantages of a General Partnership are single taxation: you only pay taxes once on your share of the business profits.

General Partnerships are also easy to start and maintain – you just have to file a form with the Delaware Secretary of State and pay a filing fee. General Partnerships have simple upkeep and tax obligations.

You don’t need a “general” state-level business license in Delaware, so you should check city or county permit requirements. If required for your type of business, a General Partnership may need to obtain a license or permit, just like any other business structure.

General Partnerships don’t have the same compliance requirements as LLCs and Corporations. LLCs and Corporations usually have to file annual reports with the state government. General Partnerships don’t have to file these.

However, some state revenue departments require all business types (including General Partnerships) to register for taxes.

Delaware requires General Partnerships formed in Delaware to pay an annual tax of $300.

General Partnership Income Taxes

In a General Partnership, business profits flow through to each of the Partners as taxable income.

This means the General Partnership will file an informational return (Form 1065) with the IRS, but the Partnership itself doesn’t pay taxes. The informational return is just to report the business’s profits and losses to the IRS. Then each of the Partners will report their portion of the business’s profit or loss on their personal tax return (Form 1040) and pay taxes as usual.

Double Taxation vs Pass-Through Taxation:

To understand this better, you can think of it in contrast to double taxation, which is how Corporations are taxed. A Corporation pays taxes once at the corporate level. Then, the owners of the Corporation pay taxes again at the individual level.

On the other hand, a General Partnership doesn’t have double taxation. Instead, all the profits from the partnership pass through to the owners as personal income. And then each of the owners pay taxes once on their share of the profits.

Note: LLCs also have pass-through taxation. If you form a Multi-Member LLC in Delaware, you get the same tax advantages as a General Partnership.

General Partnership Disadvantages: Personal Asset Protection

The main disadvantage of a General Partnership is that there’s no personal asset protection.

You and all of your business partners are liable for all the debts and liabilities of the General Partnership.

This means that one of your business’s creditors could go after your and your partners’ personal assets, such as your homes or vehicles, to pay off the business’s debts. Similarly, a court case against your business can also impact your assets.

Instead of a Partnership, you may want to start an LLC in Delaware. Having your business structured as an LLC will protect your personal assets in the event of a lawsuit. And an LLC with multiple owners is taxed the exact same way as a General Partnership.

If you want to hire a company to form your LLC, we recommend Northwest Registered Agent.

How to form a Delaware General Partnership – Step by Step

The first thing you must do to start a General Partnership is agree to go into business together. Once you decide to start the business, you and your business partners are now a General Partnership. Then, Delaware requires you to file a Statement of Partnership Existence of a Delaware Partnership.

Next, there are a few things you need in order to operate as a General Partnership. Your General Partnership will need an EIN to file its taxes. And your business may need a license or permit to operate. To open a business bank account, you will need a Partnership Agreement and an approved Statement of Partnership Existence.

We’ll walk you through each of these steps below.

Step 1 – Business Planning Stage

Once you have a business idea and have decided to operate as a General Partnership, you need to establish some key components of the Partnership.

First, you should select your business partners. Think carefully about this decision. You can add or remove partners later, but all the existing partners must vote on that decision.

Once you know who the Partners will be, establish ownership percentages (how much of the Partnership each person will own). Ownership percentage determines two important things:

  1. How much money each Partner will put into the business (their capital contribution), and
  2. How much profit each Partner receives (their capital distributions)

Both the contributions and distributions are proportionate to ownership percentage.

You should discuss other details during this first step, such as:

  • business model
  • industry
  • marketing ideas
  • business address

Your business model is how your General Partnership plans to make money – what will you sell, how is it made and delivered, etc.

Review the NAICS codes list to find the standard name for your industry. Selecting your industry ahead of time is important. Applications for business licenses and tax registrations often ask for this information (or the NAICS code). Choosing your industry upfront will reduce confusion when you and your partners complete those forms.

It’s a good idea to think of marketing ideas early on to help your business succeed. A good marketing plan can include developing a logo and brand name, deciding how and when to advertise, building a website, and developing a social media strategy.

You should choose a primary business address. This can be an actual office address, but it doesn’t have to be. It could be your home address or one of your partners’ home addresses. You could even rent a mailbox or a PO box. The purpose is to have one designated address where all mail for the business is sent, and that you can use on official documents.

Step 2: Create a Partnership Agreement

We recommend that you and your partner(s) draft and sign a Partnership Agreement. While Delaware law doesn’t require you to have a Partnership Agreement, they are essential documents to make sure your business is run smoothly. And you might need one to open a business bank account for your General Partnership. Delaware Code Section 15-103 governs Partnership Agreements.

A Partnership Agreement establishes rules for how the Partnership will be run and how profits will be split. Your agreement should include these basic items:

  • the partners’ ownership percentages
  • the partners’ responsibilities
  • decision-making and voting processes
  • rules for resolving disputes
  • rules for changing ownership (adding or removing partners)
  • arrangements for deaths, bankruptcies, etc.

You can download our Partnership Agreement below and use it for your General Partnership.

Download a free Partnership Agreement:

General Partnership Agreement (Google Docs)
General Partnership Agreement (Word)
General Partnership Agreement (PDF)

Delaware doesn’t require you to file your Partnership Agreement with the state. Partnership Agreements are valid and binding when all the partners sign it. We recommend keeping a copy of the agreement with your business records.

Step 3 – File the Statement of Existence

Now that you’ve decided on the parameters for your business, you need to name your company. The rules for naming a Partnership are found in Delaware Code Section 15-108.

Tip: If you’re having trouble brainstorming, we provide some tips on how to choose a business name.

Unlike most states, Delaware requires General Partnerships to file a formal document with the Secretary of State.

You must file a form called a “Statement of Partnership Existence”.

You can do this online via Delaware’s One Stop filing system, or by mail.

If you want to file by mail:

If you want to file online:

Simply register for a One Stop account and select the Statement of Partnership Existence form after you login.

Optional – File a DBA

You can give your General Partnership a name when you file the required Statement of Partnership Existence. But you may also want to operate under another name(s).

A business name that is different from its full legal name is commonly called a fictitious name or doing-business-as (DBA). In Delaware, a DBA is technically called a Trade Name, however, they mean the same thing.

Do we need a DBA?

You may want to operate under a different business name for better branding, recognizability, and privacy.

Your customers and vendors may also have an easier time doing business with you using your DBA instead of your General Partnership’s full and legal name.

Tip: Since General Partnerships are less common, they may confuse people you’re doing business with. Again, we recommend starting an LLC instead, since it’s a similar amount of paperwork and it offers personal asset protection.

How do we get a DBA in Delaware?

To register your DBA (aka Trade Name) in Delaware, you’ll need to register the Trade Name with the prothonotary for the county where you do business in Delaware.

First, figure out which county you need to file in. You can use this list of Incorporated Municipalities in Delaware to help.

Next, download the Registration of Trade Name Certificate. Complete this form (either type and print, or print out and hand write the information). You will need to pay $25 for each Trade Name filed.

The Delaware Superior Court has published a Trade, Business and Fictitious Names Guide to help you navigate the Trade Name filing process.

Need to save time? We recommend hiring MyCompanyWorks ($99 + state fee) to file your DBA.

Step 4 – Get an EIN from the IRS

The IRS requires that all General Partnerships get an EIN (Employer Identification Number).

General Partnerships need an EIN to file the Form 1065 Partnership Return each year. For more information on Partnership Taxation, our article on LLCs taxed as Partnerships can help.

To explore the steps required to obtain an EIN, see our EIN guide. Although this guide walks you through obtaining an EIN for an LLC, the information can be easily adjusted for partnerships.

Tip: An EIN is also called a Federal Tax ID Number, Federal Employer Identification Number, or FEIN. They all mean the same thing. Also, you don’t need to be an “employer” to get an EIN. The EIN just identifies your General Partnership for federal tax purposes.

Step 5 – Obtain a Delaware Business License

Delaware requires all General Partnerships that operate in Delaware to obtain a Delaware business license from the Division of Revenue.

For more information on this license and to learn whether you need industry-specific or other state and county licenses, consult our Delaware Business Licenses and Permits page or the Delaware Division of Revenue Business License FAQs page.

Tip: Save time by hiring an expert. We recommend using IncFile ($99) to handle the business license research for you.

Step 6 – Maintain your Partnership

Once you have established your General Partnership, there are a few things to do in order to keep your partnership in good order.

Getting a business bank account, maintaining business financial records, and filing taxes are crucial to helping your business run smoothly.

Business Bank Account

It’s very important to get a business bank account for your General Partnership. Keeping business finances separate from personal finances is an important part of operating a business safely.

Most banks require the following things to open a business bank account:

  • Partnership Agreement signed by all partners
  • EIN Confirmation Letter (CP 575)
  • DBA stamped and approved by the Secretary of State
  • State-issued photo ID for all partners

Business Records

Most states require you to keep certain business records.

Delaware’s Uniform Partnership Act doesn’t require specific records. However, it’s a good idea for your General Partnership to keep the following records:

  • Copies of tax reports for the previous three years
  • Copies of the Partnership Agreement
  • Copies of any financial statements for the previous three years

You should establish a specific location to store the records. This could be a filing cabinet in someone’s house or at the business’s office location. Or an online cloud storage system where you scan and save all the documents.

File your taxes (or hire an accountant)

As mentioned above, a General Partnership reports federal taxes on Form 1065. However, this form only describes the partnership’s income, profits, losses, and deductions. The partnership itself doesn’t pay taxes directly to the IRS. Instead, the partners owe taxes on their share of the profits, which they report on their personal tax returns.

To stay on top of your taxes, we recommend that you hire a business accountant. See our guide on how to choose an accountant.

Partnership vs. LLC

A Limited Liability Company (LLC) is a legal entity that offers pass-through taxation and asset protection. If your LLC is sued or falls into debt, only the business’s assets are at risk. Your personal assets, like your house or car, are protected.

To start an LLC in Delaware, you must file a Certificate of Formation with the Secretary of State and pay a $90 filing fee. LLCs must also pay an LLC annual fee and appoint a Registered Agent.

Pros and cons of an LLC:

A Multi-Member LLC is taxed the same way as a General Partnership (it has pass-through taxation), however, LLCs have other advantages too. The most commonly cited advantage is personal asset protection. Additionally, LLCs are viewed as more credible businesses than General Partnerships or Sole Proprietorships.

It’s also easier to open a business bank account for an LLC, and clients/vendors will take you more seriously. Besides the extra cost to form an LLC, there are no disadvantages.

Need to save time? Hire a company to form your LLC:
Northwest ($39 + state fee) or LegalZoom ($149 + state fee)

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Pros and cons of a General Partnership:

The advantage of a General Partnership is that it’s usually cheaper than an LLC. But this is NOT true in Delaware.

Because Delaware requires you to file a Statement of Existence (which costs $200) and pay an annual tax of $300, a General Partnership is actually more expensive than an LLC. It only costs $90 to file LLC formation paperwork in Delaware, and the annual fee is the same ($300).

The major disadvantage of a General Partnership is that there’s no personal asset protection.

Plus, because General Partnerships are less common, your interactions with the bank and other businesses will often be confusing. You’ll end up explaining what a General Partnership is, and how it works, in order to get things done.

Conclusion

While a General Partnership may seem easier and less expensive than starting a legal entity (like an LLC), it actually requires the same amount of paperwork and state filings in Delaware.

We really don’t see any good reasons to form a General Partnership and we don’t recommend them. They offer no advantages when compared to legal entities, and in fact, they only have disadvantages.

We recommend starting a Delaware LLC instead.

Delaware General Partnership FAQs

Yes. You must register your General Partnership with the Delaware Secretary of State.

You must file a Statement of Partnership Existence. For more information, check out the Statement of Existence section above.

And if your General Partnership will use a DBA (aka Trade Name), then that needs to be filed with the prothonotary in the county where you conduct business.

You must also obtain a Delaware business license. For more information, check out the Business License section above.

Additionally, you should check with an accountant in Delaware about whether your General Partnership needs to register with the Delaware Division of Revenue for business taxes.

A General Partnership and a Sole Proprietorship are both business structures.

The only difference is the number of owners.

A Sole Proprietorship is a business with one owner and a General Partnership is a business with two or more owners.

A General Partner just means one of the partners in a General Partnership. A General Partner is someone who has an ownership interest in the company. It doesn’t have any special properties or rights.

Note that a General Partner doesn’t have an individual interest in property that belongs to a Partnership. The partners – all together – have interest in property owned by the Partnership.

A Managing Partner is the partner who runs most of the company’s activities. In other business structures, this would just be called a Manager or – in an LLC – the Managing Member.

Your Partnership Agreement can list who is the Managing Partner, but it doesn’t have to. Your General Partnership doesn’t have to have a Managing Partner. The General Partners can run the business together.

It depends. You should check your Partnership Agreements as well as Delaware state law to determine whether one partner can sign a contract on behalf of a partnership, or if all partners are needed.

The Partnership Agreement might allow any partner to sign on behalf of the Partnership, or it might require all partners to sign. Some Partnership Agreements only let the Managing Partner sign a contract.

A DBA isn’t a Partnership, however, your Partnership can do business using a DBA (doing business as) name.

A DBA is just a “nickname” for something else – whether that’s a business or person(s).

Partnerships themselves don’t pay taxes. However, they need to file a Partnership Return (Form 1065) with the IRS each year. The partners will also get a K-1 from the Partnership, which shows their share of the profits or losses. If any tax is owed, it’s paid by each partner on their individual tax return.
Matt Horwitz
Matt Horwitz
Founder & Educator, LLC University®
Matt Horwitz has been the leading expert on LLC education for the past decade. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC that other companies weren't offering. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.

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