Key Takeaways

  • A general partnership in Ohio is automatically formed when two or more people start a business for profit.
  • Registration with the Secretary of State is not required, but filing a trade name may be necessary.
  • Partners share profits, management authority, and personal liability for debts and obligations.
  • A written partnership agreement is strongly recommended to define rights, duties, and procedures.
  • General partnerships are taxed as pass-through entities, with income reported on partners’ personal tax returns.
  • Ohio also recognizes other partnership forms—limited partnerships (LP), limited liability partnerships (LLP), and limited liability limited partnerships (LLLP).
  • Personal liability remains a critical risk in general partnerships, making legal and insurance safeguards important.

Ohio general partnership refers to two or more individuals who agree to co-own a business entity for the aim of making a profit. A general partnership is the simplest form of business partnership and the least regulated. While a general partnership enables the partners to share control and income of the business, it does not protect them from liabilities.

How Is a Partnership Formed?

According to the Ohio Revised Code section 1776.22, a partnership, regardless of the reasons, is formed automatically when two or more persons come together to form a business for profit.

Definition of a General Partnership

A general partnership is a business created when two or more persons engage in a profitable activity.

Other Types of Partnerships in Ohio

While a general partnership in Ohio is the most basic form, the state also recognizes several other partnership structures:

  • Limited Partnership (LP): Includes at least one general partner (with full liability) and one limited partner (with liability restricted to their investment).
  • Limited Liability Partnership (LLP): Protects partners from being personally liable for certain business debts and the wrongful acts of other partners.
  • Limited Liability Limited Partnership (LLLP): A less common form that combines features of an LP with liability protection similar to an LLP.

Choosing the correct type depends on the business goals, risk tolerance, and the desired level of liability protection.

Does a General Partnership Need to Be Registered?

A general partnership does not need to register with Ohio secretary of state to carry out its business operations there.

Trade Names and Business Licenses in Ohio

Although you don’t need to register a general partnership with the Ohio Secretary of State, you may still need to:

  • Register a Trade Name: If the partnership uses a business name different from the partners’ legal names, the name must be registered.
  • Obtain Local Business Licenses or Permits: Depending on the type of business and location, city or county licenses may be required.
  • Comply with State Tax Accounts: Partnerships hiring employees must register for employer withholding tax and unemployment compensation.

Failure to complete these steps could expose the business to fines or prevent it from legally operating in certain industries.

Disadvantages of a General Partnership

One of the disadvantages of a general partnership is that it's not protected from liability like an LLC.

The partners are allowed to do anything they like in the name of the partnership, but they are also personally responsible for any liabilities. The implication of this is that each partner is liable for the business debts and obligations initiated by other partners, even if they do not know about the transaction.

Advantages of a General Partnership

Despite its risks, a general partnership in Ohio also has advantages that make it attractive to new entrepreneurs:

  • Ease of Formation: Partnerships are created automatically once two or more people agree to run a business for profit.
  • Low Cost: No formal filing fees or state registration requirements.
  • Flexibility: Partners have freedom to decide how to share profits, responsibilities, and management duties.
  • Pass-Through Taxation: Income is taxed only once, on the partners’ personal returns, avoiding corporate double taxation.

For small businesses that value simplicity and direct control, these benefits can outweigh the drawbacks.

How Does Partnership Safeguard Itself Against Some of the Pitfalls?

A business partnership can take certain steps to protect itself against some of the inherent hazards. One such measure is the partnership agreement.

What Is a Partnership Agreement?

A partnership agreement is a legally binding written document that serves as a code of conduct and details the ownership stakes and duties of the partners.

What Is the Importance of a Partnership Agreement?

The partnership agreement is important for some of these reasons:

  • The partnership agreement can determine the authority of the partners over the affairs of the business.
  • The partnership agreement details the procedure for admitting new partners, expelling existing partners, selling ownership stakes in the business, and the process of dissolving the partnership.
  • Under Ohio laws, the partnership agreement is binding on the partners.
  • The partnership agreement recommends a complete dissolution and cessation of the partnership in the event of unresolvable differences among the partners.

Should You Hire an Attorney to Write the Partnership Agreement?

It's essential to get an attorney to write the partnership agreement, especially an attorney conversant with Ohio laws and their implications on your partnership agreement. Attorneys are in the best position to guide your partnership against pitfalls, as they are the first point of call when partnerships run into trouble. While you can find several free templates of partnership agreements on the internet, it's not advisable to use them.

If you hire an attorney to help you write your partnership agreement, you can rest assured that the agreement will offer effective solutions to potential problems the business might encounter and also protect your interests. An attorney can also help you create the ideal partnership that suits your needs.

Ohio Partnership: Tax Considerations and Personal Liability

For tax considerations, Ohio partnerships have the status of pass-through entities, which implies that the earnings of the partnership go into the partners' personal income, where it is taxed.

Do You Need to File Biennial Reports? 

Some Ohio partnerships need to file biennial reports, and the necessary forms can be downloaded on the online portal of the Ohio secretary of state. You can also find relevant information about federal tax regulations regarding partnerships on the IRS website.

Ohio Filing and Reporting Requirements

While general partnerships don’t file formation documents with the Secretary of State, they may have ongoing obligations:

  • Federal Filings: Partnerships file IRS Form 1065 (U.S. Return of Partnership Income) and issue Schedule K-1s to partners.
  • State Income Tax: Ohio taxes pass-through entity income on the partners’ individual returns. Some partnerships may also need to file biennial reports with the Secretary of State.
  • Withholding for Nonresidents: If a partnership has out-of-state partners, it may need to withhold Ohio income tax on their behalf.

Understanding these obligations ensures compliance and prevents penalties.

Is Personal Liability an Important Topic to Consider?

When creating a business, personal liability is only second to taxation in order of importance. Liabilities are your responsibilities as a partner in the business. The personal assets of a partner who has full liability for the partnership's debts and obligations are considered assets of the business and vice versa. Your personal assets can be used to settle the debts of the business, making it extremely important to consider how far you are willing to go for your company.

Frequently Asked Questions

  1. Do I have to register my general partnership in Ohio?
    No, general partnerships form automatically. However, you may need to register a trade name or obtain licenses depending on your business.
  2. What is the biggest disadvantage of a general partnership in Ohio?
    The major drawback is unlimited personal liability—partners’ personal assets can be used to pay business debts.
  3. Can a general partnership in Ohio hire employees?
    Yes, but the partnership must register for state employer withholding tax and unemployment compensation.
  4. How are general partnerships taxed in Ohio?
    They are pass-through entities, meaning profits and losses are reported on each partner’s personal tax return.
  5. What’s the difference between a general partnership and an LLP in Ohio?
    An LLP provides liability protection against certain debts and the misconduct of other partners, while a general partnership does not.

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