A partnership is two or more people or organizations operating a business together. Trusts may be a member of a partnership in Massachusetts. Each state has its own rules for the taxation and operation of this business structure.
How it works
How a partnership works depends on the specific business formation. In general, partners share in the profits, losses and debts. Each partner pays income tax on their earnings rather than the business paying a tax.
You can write a formal partnership agreement to legally protect yourself from someone going against verbal agreements and failing to fulfill their responsibilities.
To form this type of business in Massachusetts, you need to choose an eligible name, pay a filing fee and obtain an EIN (employer identification number). The law requires this even if you don’t have employees. If you’re using a fictitious business name instead of your real name, then you need to file an Assumed Business Name. You must renew the fictitious business name every four years.
Tax returns for partnerships in Massachusetts are due by the 15th day of the third month at the end of their taxable year. Federal returns are usually due a month later on April 15.
Each partner should receive a Schedules 3K-1. Partners must submit them with Form 3 to the Department of Revenue. For federal taxes, partners need to file Form 1065 or 1065B and Schedule K-1.
You could set up a general partnership, limited partnership, a limited liability partnership or a limited liability limited partnership. General partnerships don’t require formal formation paperwork. Limited partnerships have formal filing requirements but allow lower liability for some of the members. However, they require at least one person to be a general partner who takes on a higher level of personal responsibility. In a limited liability partnership, all partners benefit from reduced liability. An LLLP allows for general partners and limited partners to have protect their personal assets.
Partnerships are typically a low-cost way of starting a business with one or more people or entities. There are several types to choose from in Massachusetts, so you may want to check what your options are before setting up your business.