When you start a business one of the first things you’ve got to decide is which business structure your business will take. Each structure offers different combinations of tax advantages, liability protection, and other unique advantages. This article will help you understand how partnerships differ in Oregon so you can choose the one that may be best for you.
Types of Partnerships: Liability & Tax Considerations
Two important topics to consider when you are forming a business are taxation and personal liability. In Oregon partnerships are generally taxed as pass-through entities, meaning the profit and losses from the businesses pass directly into the partners’ personal incomes.
Oregon requires a yearly minimum tax from each partnership within its borders. This return can be done online at the Oregon Department of Revenue’s website. Further details on how Oregon partnership taxes are assessed can be found at this link. The Internal Revenue Service has useful tips on some of the federal requirements for partnerships.
Personal liability is the other important topic to consider when forming a business. Liability refers to how personally responsible you are for your business’ debts and obligations. If you are fully liable for your business’s debts then your personal assets such as property or savings, can be used to settle outstanding business debts. Some partnerships offer limited liability, protecting your assets from some types of debts.
The types of partnerships offered in Oregon are compared below, with information highlighting the differences in liability and tax considerations.
General Partnership (GP)
General partnerships are a great business structure for ease of use but offers no protection from the partnership’s debts to any of the partners.The partners in a GP, called general partners, account for the GP’s profits and losses on their personal tax returns. In Oregon, they are also responsible for paying the minimum partnership tax.
Limited Partnership (LP)
LPs allow a second class of partner (limited partners) whose liability is capped at their investment in the LP. General partners remain fully liable for the partnership's debts. Limited partners typically act as silent partners in the business and aren’t involved in the day to day operations of the business.
Both general and limited partners pay taxes on the revenue they derive from the LP just like with GPs. The Oregon state minimum partnership tax also applies.
How to Form a Partnership in Oregon
Once the decision has been made to form a partnership in Oregon, there are some important steps to go through in order to do everything correctly.
Step 1: Select a business name
Select a name that will appeal to your customers while also reflecting your vision for the business. Include the entity type in the name; “Flexible Bricks, LLP” for example.
Step 2: Register the business name
Protect your business by registering its name with the Oregon Secretary of State. Before registering, check the Secretary of State’s Business Database to make sure the name you want isn’t already taken.
Step 3: Complete required paperwork
In Oregon, all partnerships except GPs are required to register with the Secretary of State and pay a filing fee along with filing any additionally required paperwork. Out of state businesses have additional and/or different requirements.
General Partnerships (GP) – GPs need not register with the Secretary of State beyond filing an Assumed Business Name Registration (DBA) with the Oregon Secretary of State.
Limited Partnerships (LP) – LPs must file a Certificate of Limited Partnership.
Limited Liability Partnerships (LLP) – LLPs must turn in an Application for Registration of an LLP with the Oregon Secretary of State.
Step 4: Determine if you need an EIN, additional licenses or tax IDs
If you plan on hiring employees, you’ll need to get an Employer Identification Number (EIN) from the IRS. Even if you aren’t hiring employees, an EIN is helpful for opening business bank accounts, credit cards, and more. It’s highly recommended you get one from the IRS.
Some partnerships need additional licenses from the state in order to do business. For example, plumbers, electricians, and other types of contractors usually need to be licensed to do business. Additional taxes may also be needed, check with the Secretary of State for more details.
Step 5: Get your day to day business affairs in order
Once the Secretary of State has approved your paperwork and sent you a certified, stamped copy of the paperwork back, you’re able to do business. Here are a few things to consider as you get started with your business:
- You’ll need to open a bank account in your business’s name to keep your liability protection in tact (if your partnership type offers liability protection).
- You’ll need a physical address where the business can receive mail and legal notices.
- Make sure you have a partnership agreement on hand. This is a document that outlines how the partnership will be ran and includes details such as how to deal with partners that leave, adding new partners, changing the business, or shutting the business down.
LegalZoom will help you choose which partnership may be right for you. We can also file the paperwork to form your business, help you find a registered agent, and get you in touch with an attorney or tax professional.