Legal question...?

Question

My friend and I are looking to start a painting business. We want to go in 50/50 as partners. Can we just make up a business name, or do we have to file paperwork to make it legal. Also how do taxes work? Do we file as a business, or would we just claim the extra money we make at the end of the year along with our individual income taxes? I know we have to file a self employment tax, but do we do that if we file as a company? Any information you can give in regards to starting up a partnership and any legal/tax type of things would be most helpful.

Answer 1

You need to register your business with the State then get the IRS to issue you with your employer identification number. This is like the business SSN.

There are 4 broad business classifications:
1/ Not for profit
2/ Sole proprietor -
3/ Partnership
4/ Corporations - includes S- Corp, C-Corp and LLC's. If you incorporate as either an S-Corp or a C-Corp, then you are taxed at the lower personal rate rather than the higher corporate tax rate assessed to LLC's. The legal implications on all 3 are pretty much the same. The key differnce btw an S-Corp and C-Corp is that with an S-Corp, you pass thru business losses & income thru your personal returns (so you can pay less or zero taxes) while with a C-Corp, you can't do that. Most people prefer S-Corp's since it gives the better tax advantages out of the 3.

Best advice is to always work with a CPA so they can help you with the structuring and setting up of the books.

Answer 2

I am not sure what state your are in but this is how things work in Texas. Since you and your friend are going 50/50. It's considered a Gneneral Partnership. Here is how it's defined: General Partnership
A general partnership is created when two or more persons associate to carry on a business for profit. A partnership generally operates in accordance with a partnership agreement, but there is no requirement that the agreement be in writing and no state-filing requirement.

If the business of the partnership is conducted under an assumed name (a name that does not include the surname of all of the partners), then an assumed name certificate (commonly referred to as a DBA) should be filed with the office of the county clerk in the county where a business premise is maintained in accordance with Section 36.10 of the Texas Business & Commerce Code.

If no business premise is maintained, then an assumed name certificate should be filed in all counties where business is conducted under the assumed name.

If you want to make sure you and your partner don't get into an ungly situation, I suggest you find a lawyer to help you draw up a partnership agreement. That way, everything is in black and white.
You can go to the Secretary of State website of your state to find more information.