Alabama General Partnership

Before you begin, take a moment to confirm your understanding of the general partnership (GP) business structure.

• A general partnerships consists of several owners, called general partners.
• Owners pay taxes on business profits on their personal income tax returns and at their personal income tax rates. The IRS requires the partnership to file an informational return stating how profits are divided amongst owners.
• The appeal of a general partnership lies in that it is relatively easy to set up and maintain compared to other business structures.
• The main drawback of a general partnership is that it does not provide the owners with limited liability protection. Your car, home, savings, and other personal assets are at risk if your business gets in debt or is sued.
  • If you do not own assets, debts may be applied against future assets.
  • Business liability insurance is not a substitution for limited liability protection. Liability insurance protects the assets of the business in certain situations and up to certain limits. Limited liability protects your personal assets.

The other major option for a small multi-owner business is an Alabama limited liability company (LLC). To compare all structures, please see the Business structure comparison chart.

By default, your business name is the legal names of the owners. Any other business name is called a "doing business as" (DBA) name.

In Alabama, registering your DBA is optional. If you chose to register, it is actually the same process as filing an Alabama trademark. Your business name will be considered a "trade name" on your Alabama trademark application.

Regardless of whether you will register a trademark for your DBA, you need to check that your desired business name is available.

Because Alabama does not maintain a state-wide registry, taking sufficient time to conduct a name availability search is imperative. Even names that are not registered with the government may be protected as a trademark under common law.

Begin checking availability of your desired name by conducting a name search against LLCs, corporations, and other business entities registered with the Alabama Secretary of State. Your name must be "distinguishable" from all registered business entities.

Name Search:

Alabama Secretary of State records search

Next, check availability of your desired name against trademarks registered with the Alabama Secretary of State and the USPTO.

Alabama Trademark:

Alabama Secretary of State trademark search

Federal Trademark:

USPTO trademark search

Finally, use your common sense to search use of your desired business name in the public domain. Common law rights to a name arise from actual use, not registration. Search the internet, telephone directories, trade magazines, business or professional license records, and so on.

Filing an Alabama "trade name" for your DBA is optional.

Understand before you file:

Vocabulary:

Alabama state law refers to a "trade name" which is a word, symbol, logo, slogan or combination thereof adopted and used by the applicant to identify the business, vocation, occupation, or profession.

Rights:

"Rights of ownership of a particular mark are achieved through the common laws of adoption and usage, not registration." - Instructions for Application to Register a Trade Name in Alabama. Separately, filing a trademark with the Alabama Secretary of State prevents other businesses in Alabama from filing an LLC, corporation, or other business entity with the same name. This is because the Alabama Secretary of State requires each business name in its register to be "distinguishable".

Notes:

• Filing an Alabama trademark provides more protection than a common law trademark, but less protection than filing a federal trademark with the U.S. Patent and Trademark Office (USPTO).

To file your Alabama trade name:

Submit to:

Alabama Secretary of State
http://www.sos.alabama.gov/

Form:

Form LAT-1: Application to Register Trademark, Service Mark, or Trade Name in Alabama

Filing Method:

Mail

Fee:

$30 filing fee

Notes:

• A completed application includes the notarized form, the schedule of classifications, three specimens, the filing fee, and a copy of federal trademark registration (if applicable).
• The application is for a single classification. Submit multiple applications if you wish to apply for multiple classifications.

A partnership agreement is a legal document between the owners. It is not mandatory, but will help the owners resolve potential disputes in advance. Without a partnership agreement, the GP will be governed by the default rules of the Alabama Uniform Partnership Act.

There are many free partnership templates that you can tailor to your needs. A good template will contain:

1. Allocation of profits / losses
2. Contributions to the partnership including cash, property, and services
3. Management authorities / responsibilities of the partners (e.g. entering into contracts)
4. Decision-making and voting
5. Admitting new partners, buying-out a partner, if a partner wants to withdraw, and other changes in ownership
6. What happens upon death, bankruptcy, or other events to a partner
7. Mediating disputes

Partnerships must obtain an Employer Identification Number (EIN). This is a nine digit number issued by the IRS and used for tax-reporting purposes. You will also use your EIN to open a business bank account.

Submit to:

Internal Revenue Service
http://www.irs.gov/

Form:

IRS Form SS-4

Guidance:

IRS Pub 1635: Understanding Your EIN

Filing Method:

Mail, phone, fax, or apply online with the IRS

Fee:

$0

Turnaround:

Immediately online

Notes:

The IRS website is only available during certain hours. Print your EIN before closing your session.

Alabama offers a consolidated state tax registration application.

Submit to:

Alabama Department of Revenue
http://revenue.alabama.gov/

Form:

Form COM-101: Alabama Department of Revenue Combined Registration/Application

Filing Method:

Mail or online

Fee:

$0

Turnaround:

~3-5 business days online

To run your business legally, you must obtain applicable licenses and permits. The easiest way to navigate the wide range of federal, state, and local requirements is to search by your business type and locality using the Small Business Administration Business License & Permit look-up tool.

In Alabama, a privilege license is required in every county where you conduct business. Apply in each county where the business is located:

Submit to:

County Probate Judge or License Commissioner. See County Probate Office Contact Information.

Guidance:

Alabama Department of Revenue - Business & License Tax FAQs

Law:

Title 40, Chapter 12, Code of Alabama 1975

To finish setting up your general partnership:

• Open a business bank account. Keep your personal finances and business finances separate.
• Obtain general business liability insurance. Because a general partnership does not have limited liability, an insurance policy may be the only protection against unforeseen events.
• Comply with employment laws as you hire help.
• Report and pay taxes.