Here are the steps you should take to form a partnership in the state of Alabama. A partnership (also known as a general partnership) is created whenever two or more people agree to do business together for profit, even if there is no intent or written agreement to form a partnership. While there are no formal filing or registration requirements needed to create a partnership, partnerships must comply with registration, filing, and tax requirements applicable to any business. There are also some steps every partnership should take to make sure they follow sound business practices when they start their new venture.
To form a partnership in Alabama, you should take the following steps:
To find out how to establish a partnership in any other state, see Nolo’s 50-State Guide to Forming a Partnership. To read more about partnerships in general (including the difference between a partnership and limited partnership), see Nolo’s section on Partnerships.
1. Choose a Partnership Name
In Alabama, a partnership may use the surnames of the individual partners or may use a fictitious business name. If you plan to use a fictitious business name, it must be distinguishable from the name of any other company currently on record. It is also a good idea to choose a name that is not too similar to another registered business because of common law and federal trademark law protections. To make sure your business name is available, run a search in the following government databases:
2. File a Trade Name
If you use a business name that is different from the surnames of the individual partners, Alabama provides the option of filing a trade name with the Secretary of State. This is an optional step. The Alabama Secretary of State provides a form for filing a trade name application. The filing fee is $30. The process for registering a trade name is identical to the process for registering a trademark in Alabama. For details, see Nolo's section on Trademark Law.
3. Draft and Sign a Partnership Agreement
A partnership agreement is not a mandatory legal requirement for establishing a partnership. However, it is a very important step to ensure there are no misunderstandings between you and your partners. A well-drafted partnership agreement will help you decide in advance how to handle certain situations.
Here’s a list of items that should be covered in your partnership agreement:
Even well intentioned, honest partners can find themselves in a legal battle if they do not have a written partnership agreement memorializing their initial purposes. Your partnership agreement can always be amended at a later date should circumstances or conditions change. For help creating your partnership agreement, see Form a Partnership: The Complete Legal Guide, by Denis Clifford and Ralph Warner (Nolo),
4. Obtain Licenses, Permits, and Zoning Clearance
Your business may need to obtain business or professional licenses depending on the type of business activity you are engaged in. Alabama requires all businesses to obtain a privilege license. You can obtain a privilege license by visiting the probate judge in the county where your business is located. The Alabama Department of Revenue provides a list of contact information for the various counties. Alabama provides a comprehensive database of every occupation that requires a license by a partnership. You can obtain this information from the Alabama Occupational License Brochure, a service of the Alabama Business and Tax License Division. In addition, local regulations, including licenses, building permits, and zoning clearances, may apply to your business. You will need to check with your city and county governments for more information.
5. Obtain an Employer Identification Number
Partnerships are required by the IRS to obtain an Employer Identification Number, or EIN. This is a nine-digit number issued by the IRS for tax reporting purposes. Partnerships must have an EIN regardless of whether or not they have employees. Registering for an EIN can be done online at the IRS website.
In Alabama, businesses are required to report taxes and file various employee reports. You may need to use your EIN when registering your business to report taxes through the Alabama Department of Revenue. If you have employees, you must report and pay employment taxes on a periodic basis. You will be able to report and pay all employment related taxes by registering through the Alabama Department of Industrial Relations.
It is important to consider doing the following once you have created your partnership: