Learn More About Partnerships in Massachusetts

Types of Partnerships in Massachusetts

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General Partnership

In a general partnership, each partner shares in the operation and administration of the business and is responsible for its liabilities. If any partner is sued, all partners are liable. These types of partnerships are usually not favored.

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Limited Partnerships

Limited partnerships have both general and limited partners. Limited partners act as investors who do not participate in the daily operations or administration and only share in the profits. Limited partners have reduced liability.

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Limited Liability Partnerships (LLP)

Limited Liability Partnerships (LLP) are more akin to limited liability companies (LLC). All partners have limited liability and are immune from the tortious, negligent, or wrongful acts of other partners. These types of partnerships are the most common and favored.

 

Forming a Partnership Agreement in Massachusetts

 

Generally, to form a partnership in Massachusetts, the parties must: 

 

1. Choose a business name 

2. Register the business name with local, state, and federal authorities

3. Draft a partnership agreement 

4. Obtain any necessary licenses or permits

5. File necessary tax and regulatory forms

 

Implicit Agreements 

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Partnership agreements may be formed by implied agreements (not in writing) as determined by the conduct of the partners, the sharing of profits and losses, common ownership of property, investment in the business, and control of the business operations. 

 

Because partnerships can be formed implicitly, even if individuals or companies do NOT want to form a partnership, they may be engaging in conduct that creates a partnership by “implied agreement.” 

 

Partnership Laws in Massachusetts

Partnerships are governed by the Massachusetts Uniform Partnership Act, or for limited partnerships, by the Massachusetts Limited Partnership Act. 

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How are Partnerships Taxed?

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Partnerships are not taxed separately; however, they must file a Form 1065 to show income, expenses, and deductions. The income tax is that of the distributable income, meaning that it need not have been distributed to any partner to be taxed.

 

Also, each partner is considered to be self-employed and pays self-employment taxes that are included on each partner’s 1040 form. If the partnership has employees, it must pay withholding and reporting of various taxes such as FICA, workers’ compensation, Social Security, and Medicare.

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What Should be Included in a Partnership Agreement?

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Explicit partnership agreements help the partners set expectations. All terms of the agreement should be customized to the partnership’s needs. Still, the following key provisions should be included in any partnership agreement: 

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Organization 

Name, date of formation, statute, or laws under which it was formed, and if it is to conduct business under any other name(s).

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Term of the Partnership

Whether the partnership is perpetual or terminated upon completion of the project or enterprise.

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Purpose

A description of both the general and specific purposes of the partnership, such as to carry on any other business activity that a limited partnership may be authorized to perform under state law.

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Partner Contributions

Amount and manner of contributions from each partner such as cash, property, or services. This section should also describe what happens if a partner fails to abide by the stated commitment.

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Capital Accounts, Distributions, Profits, and Losses

Terms creating separate capital accounts and establishing how profits and losses are allocated.

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Salaries

How salaries are determined for partners and non-partners.

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Management

Whether management responsibilities will be vested in one partner or in a management group, and who is an authorized signatory. Authorized signatories are those who can commit the partnership to contractual obligations.