Going into business with someone else? Here is the full step-by-step, in plain English, with the one document that matters more than all the others combined. All information verified from official Michigan and IRS sources.
A partnership is what you automatically have the moment two or more people go into business together for profit. Like a sole proprietorship, it forms on its own. You do not sign anything with the state of Michigan, you do not pay a fee, and nobody sends you a certificate. If you and a friend start mowing lawns together and split the money, Michigan already considers you a general partnership.
That automatic part is exactly what makes partnerships risky. Because you never filed anything, you probably never wrote down who owns what, who decides what, or what happens if one of you walks away. When that conversation finally happens, it usually happens during an argument. The written partnership agreement covered in Step Four is the single most important thing on this page.
The other thing to understand up front is joint and several liability. In a general partnership, every partner is personally responsible for the debts of the business, including debts another partner ran up without telling you. If your partner signs a bad contract or the business gets sued, a creditor can come after your personal savings, your car, and your house, even if you had nothing to do with the decision.
Most people who say "partnership" mean a general partnership, and for two people starting a small service business that is usually the right call. But two other versions exist, and they solve a specific problem: liability. Read all three before you pick, because the choice changes what you file, what you pay, and how exposed you are personally.
The default. Two or more people running a business together. Every partner shares in management, profits, and unlimited personal liability. Nothing is filed with the state.
Has at least one general partner who runs things and carries full liability, plus limited partners who invest money but stay out of management and only risk what they put in. Filed with LARA.
A general partnership that registers with the state for protection against liability created by the other partners' actions. Common for law, accounting, and architecture firms.
If two or more of you want liability protection and pass-through taxes, a multi-member LLC does that for a flat $50 in Michigan and is simpler to explain to banks and clients than an LP or LLP. Partnerships make the most sense when you want zero cost and zero filing, or when your profession specifically calls for an LLP. It is worth reading the Michigan LLC Guide before you commit to anything here.
Some of these steps are legally required and some are just how you avoid a mess two years from now. Both kinds are marked clearly. Work through them in order.
Before you name anything or file anything, settle this question, because everything else on this page branches off it. The deciding factor is almost always liability: how much of your personal money are you willing to put on the line for decisions your partner makes?
If everyone involved is actively working in the business, the risk is low, and you want to spend nothing, a general partnership is fine. If somebody is only putting in money and wants no part in running things, that is a limited partnership. If you are in a licensed profession like law or accounting and want protection from a partner's malpractice, that is an LLP.
Sit down with your partner and answer one question out loud: if this business gets sued for more than it is worth, whose personal assets are on the line? Write down the answer. If the answer makes either of you uncomfortable, price out a Michigan LLC at $50 before going further.
A general partnership can operate under the partners' real surnames with nothing extra to do. "Smith & Garcia" is fine if those are your actual last names. Anything beyond that counts as an assumed name and triggers a county filing, which is Step Three.
Limited partnerships and LLPs have naming rules set by the state. An LP name must contain the words "Limited Partnership." An LLP name must end with "Limited Liability Partnership," "L.L.P.," or "LLP." Get this right before you order signs or business cards.
Search your name at mibusinessregistry.lara.state.mi.us, then check your county clerk's business name records separately. A name being free at the state level does not mean it is free in your county, and vice versa. Lock down the domain the same day you settle on the name.
This trips people up constantly. Michigan tracks county assumed names and state entity names in two completely separate systems. Your county clerk cannot see what is registered at the state, and LARA cannot see what is registered in your county. Search both, or you may build a brand on a name someone else already has.
This is the step that surprises people who assumed a general partnership means zero paperwork. Michigan handles partnership name registration at the county level, not the state level, through the county clerk's office. There are two forms and which one you file depends on your situation.
A Certificate of Co-Partnership registers the partnership and the people in it. A Certificate of Assumed Name registers a trade name that is not the owners' real names. Many counties treat the co-partnership certificate as the standard filing for any general partnership, so do not assume you are exempt just because you are using your own surnames.
Both certificates must be notarized, and both are filed in the county where your business is located. If you do business in more than one county, most clerks will tell you to file in each of them.
Call your county clerk's office and ask directly: "I am starting a general partnership in this county — do I need to file a Certificate of Co-Partnership, a Certificate of Assumed Name, or both?" Requirements and fees vary by county, so the clerk is the only reliable answer. Many Michigan counties now let you start the application online and finish it in person. Bring a government-issued photo ID; all partners typically need to sign in front of a notary, and most clerk's offices will notarize for you on the spot.
Ask for two or three certified copies while you are there. They usually cost a couple of dollars each. Your bank will want one to open the business account, and replacing them later means another trip to the clerk's office.
Nothing else on this page matters as much as this. A partnership agreement is a private written contract between the partners. You do not file it with the county or the state, nobody checks whether you have one, and there is no penalty for skipping it. Skip it anyway and you are gambling your business on the assumption that you and your partner will never disagree about money.
Here is what happens if you do not have one. Michigan's Uniform Partnership Act fills in the blanks for you, and its default rules are blunt. Profits get split equally regardless of who contributed more money or worked more hours. Every partner gets an equal vote regardless of ownership. Those defaults have ended a lot of friendships.
Draft your answers to all nine items above with your partner in one sitting before anyone spends money on lawyers. Then have a Michigan business attorney review and finalize it. A few hundred dollars now is dramatically cheaper than litigating a buyout later. Once it is signed, every partner keeps an original copy.
Most people write a partnership agreement thinking about how they will run the business. The clauses that actually get used are the ones about someone leaving. Partners quit, move away, get sick, get divorced, and die, and every one of those events puts their share of your business in play. Decide now, while everyone is friendly, what happens then.
General partnerships skip this step entirely. There is no state filing and no state fee. If you chose an LP or an LLP back in Step One, this is where that decision costs money.
A limited partnership files a Certificate of Limited Partnership with LARA for $10. It has to name a resident agent with a real Michigan street address, state the general nature of the business, and list the name and address of every partner. The LP legally exists the moment LARA files it.
A limited liability partnership files an Application to Register a Limited Liability Partnership with LARA for $100. One catch worth knowing in advance: LARA expects the partnership to have already filed its county certificate before registering as an LLP, so Step Three comes first.
File through the state portal at mibusinessregistry.lara.state.mi.us. LP forms and LLP forms are both listed under the Corporations Division at michigan.gov/lara. Expedited processing is available for an extra fee if you are on a deadline.
This one catches people. Unlike an LLC, an LLP registration is not permanent. It has to be renewed annually with LARA, and the renewal costs another $100 each time. Let it lapse and you lose the liability protection you paid for. Put the renewal date in your calendar the day you file.
A sole proprietor can get away with using a Social Security Number. A partnership cannot. Every partnership is required by the IRS to have its own Employer Identification Number, because the partnership files its own tax return and issues tax documents to each partner. There is no version of this you can skip.
Apply free at irs.gov — Apply for EIN Online. Available Monday–Friday, 7am–10pm Eastern. One partner completes it as the responsible party and needs their own Social Security Number to do it. Save the confirmation letter somewhere both partners can find it.
Plenty of websites charge $50–$300 to "get your EIN for you." It is completely unnecessary. The IRS application is free and takes about 10 minutes at irs.gov. Any site charging for an EIN is a middleman you do not need.
In a partnership this is not just good bookkeeping, it is conflict prevention. The fastest way to poison a partnership is for one partner to suspect the other of taking money out. A single business account that both partners can see removes the guesswork entirely.
Decide two things before you walk into the bank: who is authorized to sign, and above what dollar amount a transaction needs both partners to approve. Most banks can set up dual authorization. Write whatever you decide into your partnership agreement.
Open one dedicated business checking account in the partnership's name. Online banks like Mercury and Relay offer free business checking with no monthly fees. Traditional Michigan options include Huntington Bank, Chase, and local credit unions. Ask specifically about dual-approval settings for large transfers, and make sure both partners get login access.
Nobody withholds taxes from a partnership. Open a second savings account and move 25–30% of every dollar the business earns into it the day it arrives. When quarterly estimated payments come due, the money is already sitting there and neither partner has to chase the other for it.
Michigan does not require a general business license at the state level for most businesses, but depending on what you do and where you do it, you may need licenses at the state, county, or city level. This is identical whether you are a partnership or any other structure.
Insurance deserves more attention in a partnership than almost anywhere else. In a general partnership you have no liability protection at all, and you are exposed to your partner's mistakes as well as your own. Insurance is the only real barrier between the business and your personal assets.
Check your industry's license requirements at michigan.gov/lara. If you sell taxable goods, register free for a sales tax license at michigan.gov/taxes/mto. Then get general liability quotes from providers like NEXT Insurance, Hiscox, or CoverWallet. Coverage often starts around $25–$50 per month depending on your industry.
If your partner dies, their ownership share passes to their heirs, who may want to be bought out immediately and in cash. A key person life insurance policy on each partner funds that buyout without draining the business. Pair it with the buyout formula in your partnership agreement and you have an actual plan instead of a crisis.
A partnership does not pay federal income tax. It files an informational return, Form 1065, that reports what the business earned and how it was divided. Each partner then receives a Schedule K-1 showing their share, and they report that share on their own personal return.
The part that catches new partners off guard: you owe tax on your share of the profit whether or not the money was actually distributed to you. If the partnership earned $80,000 and left it in the bank to fund growth, each partner still owes tax on their slice of that $80,000.
Michigan is simpler than most states here. A Michigan partnership generally has no state income tax return to file at the entity level. Each partner reports their share on their personal Michigan return at the flat 4.25% rate.
Form 1065 is due a full month before personal tax returns, and the late-filing penalty is charged per partner per month. Miss it by three months with two partners and you are looking at a meaningful bill for a form that reports no tax due. Your partners also cannot finish their personal returns until they have their K-1s, so filing late holds up everyone.
Michigan lets partnerships elect to pay income tax at the entity level at 4.25% instead of passing it all through, using the Flow-Through Entity Tax on Form 5772. Partners then claim a credit for their share. For some profitable partnerships this produces a federal tax benefit; for others it just adds paperwork. It depends on your specific numbers, so ask a CPA before electing — the election locks you in for three years.
Set up federal quarterly payments at irs.gov/payments and Michigan payments at michigan.gov/taxes/mto. Then hire a CPA for your first Form 1065. Partnership returns are meaningfully harder than a Schedule C, K-1 allocations are easy to get wrong, and a mistake here lands on every partner's personal return.
What you owe going forward depends on which type of partnership you formed. General partnerships have almost no state obligations. LLPs have the most. Here is the full picture.
File the partnership return and issue a Schedule K-1 to every partner by March 15. This applies to all three types of partnership. Penalties are charged per partner per month, so late filing gets expensive fast with multiple partners.
An LLP registration expires one year after it is filed and must be renewed with LARA for $100 to stay active. Let it lapse and the liability protection goes with it. General partnerships and limited partnerships have no state annual report requirement in Michigan.
Each partner pays their own estimated taxes on their share of the profit, four times a year: April 15, June 15, September 15, and January 15. The partnership does not withhold anything on your behalf.
Your Certificate of Co-Partnership or Assumed Name is valid for five years from the filing date and then has to be renewed with the county clerk. Fees are typically the same as the original filing.
Review the partnership agreement whenever anything real changes: a new partner, a different profit split, a partner reducing their hours. An agreement that no longer matches how you actually operate is nearly as bad as not having one.
Track every dollar in and out, including each partner's contributions and draws, and make sure both partners can see the books at any time. Use accounting software like Wave (free) or QuickBooks. Transparent books prevent most partnership disputes before they start.
Get the agreement in writing, file with your county, and set your tax dates. Ready to dig into the tax side or compare this against other structures?
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