Forming a business partnership is relatively easy, but it's essential to understand the potential legal implications of the arrangement. Various dissolutions, taxes, taxation, capital gains, and filing requirements can quickly make it more complicated. For those looking to establish a general partnership in the state of New York, here are some considerations to keep in mind.

Every state has legal regulations for business partnerships, and legal requirements in New York are especially complex. In general, partners entering into a business partnership should be aware of the filings, laws, and procedures that are mandated under local laws. For a business partnership in New York, this includes New York State Tax Law, New York Partnership Law, and the legal laws of any other state where the partnership does business.

It is wise to hire a lawyer to ensure that the legal structure of the partnership is compliant with regulations. They can help with the registration process, as well as filing tax forms and dealing with the other ways that a partnership might interact with the local, state, or federal government. Additionally, having a lawyer familiar with the particular laws of the state can be beneficial in the event of any future disputes or issues.

1. Agreements & Disclosures

Like with any legal document involving multiple parties, every general partnership should have an agreement that defines the rights and responsibilities of each partner. This agreement should cover the basic information of the partnership structure, including the ratio or percentage of ownership, the distribution of profits and losses, the goals of the company, any restrictions on partners, and other related details for the structure.

In addition to these details, the partnership agreement should also include terms for dissolution, so that clear methods exist to end the company if desired by the partners. Additionally, it is wise to include waivers from each partner that help protect the company from future lawsuits.

2. Tax Declarations & Filing Requirements

A general partnership must file a Form 1065, which is the annual return of income taxes for the whole business. This document requires the partnership to report its incomes, expenses, losses, profits, and more. Additionally, the partnership will need to make an annual Declaration of Estimated Tax and Partnership Tax Return if its total income is higher than $15000.

3. Capital Gains & Losses

Under New York law, each partner's individual tax rate will apply to their portion of the partnership's gains or losses. As a result, the partner is individually responsible for reporting these profits or losses and having the appropriate tax rate applied.

Partners are also responsible for paying a New York state tax on capital gains, using Form IT-2658. It's wise to ensure that each partner is familiar with the state and federal regulations that impact their personal taxes, as well as the overall capital gains and losses of the business.

4. Tax Audits

The state of New York allows the Department of Taxation and Finance to initiate an audit of the partnership at any time. Generally, the audit focuses on the partnership's overall filing procedures and attempts to match the information in the return that was filed. It’s important to ensure that both the partners and the business are in compliance with the local tax laws in the event of an audit.

5. Liability

Under a general partnership, each partner is personally liable for the debts and losses of the company. This means that the creditor or party pursuing legal action can take any and all assets that the partner has, whether it's the assets of the business or the partner's own separate assets.

Closing ideas

Forming a successful business requires understanding both the greater economic environment and the regulations for local laws in New York. Each partner should be cognizant of the local laws regarding general partnership, filing procedures, tax implications, etc. Ultimately, having an understanding of the details of business partnership can help ensure a healthy and successful, business relationship.

Topics:

General Partnership,

Business Partnership,

Tax Implications