By Jake Lawson, LLC Formation Strategist
I’m going to be brutally honest about something that could save you from financial ruin: Arkansas general partnerships are a terrible choice for 99% of business situations. After helping 80+ Arkansas entrepreneurs navigate business formation over the past decade, I’ve never recommended a general partnership—not once.
Here’s why that matters for your Arkansas business.
Bottom Line Up Front: While Arkansas general partnerships require minimal paperwork and no state filing fees, they expose every partner to unlimited personal liability. For just $45 more, an Arkansas LLC provides the same tax benefits plus asset protection that could save your house if things go wrong.
Let me walk you through the complete picture so you can make an informed decision.
What Is an Arkansas General Partnership?
Under Arkansas Code Section 4-46-202, a general partnership forms automatically when two or more people agree to operate a business together for profit. No state filings, no registration fees, no formal documentation required.
Sounds simple, right? Here’s the catch that destroys entrepreneurs: unlimited joint and several liability.
How Arkansas General Partnerships Work
When you form a general partnership in Arkansas:
- Each partner shares ownership of business assets, profits, and debts
- Every partner has unlimited personal liability for all business obligations
- Any partner can legally bind the entire partnership to contracts
- Partners share profits and losses according to their ownership percentage
- The partnership files informational tax returns, but partners pay taxes individually
Jake’s Reality Check: “Joint and several liability” means creditors can pursue any partner for 100% of partnership debts, regardless of ownership percentage. Your 10% partnership stake could cost you your entire life savings.
Arkansas Business Structure Options
Let me cut through the confusion and show you what you’re really choosing between:
Sole Proprietorship (1 Owner)
- Formation: No filing required
- Liability: Unlimited personal liability
- Taxes: Pass-through to personal return
- Best For: Testing business ideas with minimal risk
General Partnership (2+ Owners)
- Formation: No filing required
- Liability: Unlimited personal liability for all partners
- Taxes: Pass-through to partners’ personal returns
- Best For: I honestly can’t think of a good use case
Arkansas LLC (1+ Owners)
- Formation: $45 state filing fee
- Liability: Limited personal liability protection
- Taxes: Pass-through (same as partnership) or corporate election
- Best For: 95% of new Arkansas businesses
Arkansas Corporation (1+ Owners)
- Formation: $50 state filing fee
- Liability: Strong liability protection + investment capabilities
- Taxes: Corporate rates or S-Corp election
- Best For: High-growth businesses seeking investment
My Recommendation: The $45 difference between a partnership and LLC is insignificant compared to the asset protection you gain.
How to Form an Arkansas General Partnership (If You Ignore My Advice)
Despite my strong recommendation against partnerships, here’s the complete process:
Step 1: Business Planning and Partner Evaluation
Choose Partners Like Your Financial Life Depends on It (Because It Does) In Arkansas partnerships, you’re legally married to your partners’ business decisions. Their mistakes become your personal liability.
Essential Partner Evaluation:
- Financial Stability: Credit history, debt obligations, financial responsibility
- Business Experience: Relevant skills, decision-making track record
- Character Assessment: Integrity, communication style, conflict resolution approach
- Long-Term Commitment: Alignment on business goals and exit strategies
Ownership Structure Planning:
- Capital Contributions: Initial investments and ongoing funding obligations
- Profit/Loss Allocation: How earnings and losses will be distributed
- Management Responsibilities: Who handles what business functions
- Decision-Making Authority: Voting rights and approval processes
Step 2: Create a Comprehensive Partnership Agreement
Arkansas Code Section 4-46-103 allows partnership agreements to govern most aspects of the partnership relationship. While not required by law, a detailed agreement is essential.
Critical Agreement Components:
- Partner identification and contact information
- Business purpose and scope of operations
- Capital contribution requirements and schedules
- Ownership percentages and profit/loss allocations
- Management structure and decision-making processes
- Partner compensation and distribution policies
- Dispute resolution mechanisms
- Partner withdrawal and expulsion procedures
- Death, disability, and bankruptcy provisions
- Business dissolution procedures
Jake’s Agreement Advice: Have an Arkansas business attorney draft your partnership agreement. The $1,500-3,000 legal fee is cheap insurance compared to potential partnership disputes.
Step 3: Choose Business Name and Register DBA
Your Arkansas general partnership can operate under the partners’ names or file for a “Fictitious Name” (Arkansas’s term for DBA).
Arkansas DBA Requirements:
- File Form DN-18 with Arkansas Secretary of State ($15 fee)
- May require additional county filing and fees
- Name must be distinguishable from existing Arkansas business names
- Cannot include “LLC,” “Corporation,” or similar terms
DBA Filing Process:
- Complete Application for Fictitious Name (Form DN-18)
- Pay $15 state filing fee
- Check county requirements for additional filings
- Receive approved fictitious name certificate
Step 4: Obtain Federal Tax ID Number (EIN)
All Arkansas general partnerships must obtain an EIN from the IRS for tax filing purposes.
EIN Application Requirements:
- Partnership name and business address
- Responsible party information (partner SSN required)
- Business start date and employee count
- Banking and tax purposes for EIN
Application Process:
- Complete IRS Form SS-4 online
- Provide partnership and partner information
- Receive EIN immediately upon completion
- Use EIN for banking, taxes, and business transactions
Step 5: Research Arkansas Business Licenses
Arkansas doesn’t require a general business license for partnerships, but specific industries may need licenses or permits.
Common Arkansas Licensing Requirements:
- Professional Services: Accounting, legal, medical, real estate
- Food Service: Health department permits, food handler licenses
- Construction: Contractor licenses, building permits
- Retail Sales: Sales tax permits, zoning compliance
Arkansas Licensing Resources:
- Arkansas Secretary of State: Business licensing guidance
- Arkansas Department of Labor and Licensing: Professional licenses
- Local city/county offices: Local permits and zoning requirements
Step 6: Set Up Business Banking and Financial Management
Required Banking Documents:
- Partnership Agreement signed by all partners
- EIN confirmation letter from IRS
- Fictitious Name certificate (if using DBA)
- Government-issued photo ID for all partners
- Initial deposit (varies by bank)
Arkansas Banking Recommendations:
- Simmons Bank: Strong Arkansas presence, good business banking
- Regions Bank: Wide network, comprehensive business services
- First National Bank: Local institution, personalized service
The Hidden Costs of Arkansas General Partnerships
While partnerships have no formation costs, the hidden expenses can be devastating:
Unlimited Liability Scenarios
Real-World Example 1: Partners operate a consulting firm. One partner signs a 3-year office lease without consulting others. When the business fails, all partners are personally liable for remaining lease payments.
Real-World Example 2: A customer slips and falls at the partnership’s retail location. Even if one partner was solely responsible for store maintenance, all partners face unlimited personal liability for damages.
Real-World Example 3: One partner embezzles client funds. While criminal liability stays with the guilty partner, civil liability for restitution extends to all partners’ personal assets.
Professional Credibility Issues
Banking Challenges:
- Arkansas banks often don’t understand partnership structures
- More complex account opening processes
- Limited business credit opportunities
- Personal guarantees required from all partners
Client and Vendor Relations:
- Less professional appearance than LLCs or corporations
- Potential confusion about business structure
- Difficulty establishing business credit history
- Complex contract negotiations
Growth Limitations:
- Cannot issue equity interests or stock
- Difficulty attracting investors
- Challenges in business sale or transfer
- Limited succession planning options
Arkansas LLC: The Superior Alternative
For $45 in state fees, an Arkansas LLC provides everything a general partnership offers plus crucial additional benefits:
Arkansas LLC Advantages
Personal Asset Protection:
- Limited liability for business debts and obligations
- Protection from other members’ personal creditors
- Clear separation between business and personal assets
Tax Flexibility:
- Default pass-through taxation (identical to partnership)
- Option to elect corporate taxation if beneficial
- Simplified tax compliance and reporting
Professional Credibility:
- Universally recognized and understood business structure
- Easier banking, credit, and vendor relationships
- Enhanced client confidence in business operations
Operational Flexibility:
- Flexible management structure options
- Easy member addition and removal procedures
- Clear ownership transfer mechanisms
- Professional succession planning capabilities
Arkansas LLC Formation Process
- Choose LLC Name: Must include “LLC” or “Limited Liability Company”
- File Articles of Organization: $45 to Arkansas Secretary of State
- Appoint Registered Agent: Arkansas address for legal documents
- Create Operating Agreement: Define ownership and management structure
- Obtain EIN: Federal tax identification number
- Open Business Bank Account: Separate business finances
Processing Time: 5-10 business days Total Cost: $45 state fee + registered agent (if needed)
When General Partnerships Might Make Sense (Extremely Rare)
In my decade of Arkansas business formation, I can count on one hand the situations where a general partnership might be considered:
1. Very Short-Term Projects
- Project duration under 3 months
- Minimal financial investment required
- Comprehensive insurance coverage in place
- Clear dissolution procedures established
2. Family Businesses with Existing Protection
- Immediate family members as partners
- Existing asset protection structures (trusts)
- Comprehensive business insurance policies
- Plans to convert to LLC within 6 months
3. Testing Business Concepts
- Market validation phase only
- No significant capital investment
- Minimal customer interaction or liability exposure
- Immediate conversion plan for successful concept
Even in these cases, I typically recommend spending the extra $45 for an Arkansas LLC. The peace of mind is worth far more than the cost difference.
Arkansas Partnership Maintenance Requirements
If you proceed with a general partnership despite my advice, understand your ongoing obligations:
Record Keeping Best Practices
While Arkansas doesn’t mandate specific partnership records, maintain:
- Partnership agreement and all amendments
- Meeting minutes and partner resolutions
- Financial statements and tax returns (3 years minimum)
- Capital contribution and distribution records
- Business licenses and permits
Tax Compliance Requirements
Federal Obligations:
- File Form 1065 Partnership Return annually (due March 15)
- Provide Schedule K-1 to each partner
- Partners report their share on individual returns
Arkansas State Requirements:
- Partners file individual Arkansas tax returns
- Potential sales tax registration if selling goods
- Business license renewals as required
Insurance Considerations
Given unlimited liability exposure, Arkansas partnerships should carry:
- General Liability Insurance: Minimum $1 million coverage
- Professional Liability Insurance: For service businesses
- Product Liability Insurance: For manufacturing or retail
- Umbrella Policies: Additional liability protection
Converting Arkansas Partnership to LLC
Many of my clients eventually convert partnerships to LLCs once they understand the liability implications:
Conversion Process
- File Arkansas LLC Articles of Organization ($45)
- Obtain new EIN for the LLC
- Transfer partnership assets to LLC
- Update business licenses and permits
- Notify banks, vendors, and clients
- File final partnership tax returns
- Begin LLC tax and compliance procedures
Conversion Costs:
- $45 LLC filing fee
- Legal and accounting fees for asset transfer
- Time and administrative complexity
- Potential business relationship disruption
Jake’s Conversion Advice: Plan conversions carefully with Arkansas professionals. The process requires proper documentation to avoid tax implications.
Arkansas Partnership Dissolution
General partnerships dissolve automatically in several situations:
- Partner death, withdrawal, or bankruptcy
- Mutual agreement among partners
- Court-ordered dissolution
- Achievement of business purpose
Dissolution Procedures
- Determine Dissolution Trigger: Identify legal basis for dissolution
- Wind Down Operations: Complete ongoing business obligations
- Settle Partnership Debts: Pay all creditors and obligations
- Distribute Remaining Assets: Follow partnership agreement procedures
- File Final Tax Returns: Complete federal and Arkansas obligations
- Cancel Licenses and Permits: Terminate all business registrations
- Close Bank Accounts: Distribute remaining funds appropriately
Ongoing Liability: Partners remain personally liable for partnership debts until all obligations are satisfied.
Jake’s Final Recommendation: Choose Arkansas LLC
After helping 80+ Arkansas entrepreneurs with business formation, my advice is simple and consistent: skip the general partnership and form an Arkansas LLC.
The Economic Analysis
- Arkansas LLC: $45 formation + liability protection + professional credibility
- Arkansas Partnership: $0 formation + unlimited liability risk + credibility issues
The Risk Assessment
- One partnership lawsuit could cost you everything you own
- One partner’s poor decision becomes everyone’s financial problem
- Limited business growth opportunities due to structure limitations
The Success Pattern
Every Arkansas client I’ve helped convert from partnership to LLC wishes they’d started with an LLC from the beginning.
Your Arkansas Business Formation Action Plan
If You’re Determined to Form a Partnership:
- Have an Arkansas business attorney draft a comprehensive partnership agreement
- Obtain extensive business and professional liability insurance
- Establish clear financial controls and partner oversight procedures
- Plan to convert to an LLC within 12 months
For Either Structure:
- Consult with an Arkansas CPA about tax implications and planning
- Research industry-specific licensing requirements thoroughly
- Secure appropriate business insurance coverage
- Establish proper Arkansas banking relationships
Arkansas Business Formation Services
If you decide to form an LLC instead of a partnership (my strong recommendation), consider these options:
Budget Option: Northwest Registered Agent – $39 + state fees
- Excellent value and customer service
- Arkansas registered agent service included
- No pressure tactics or hidden fees
Full Service Option: LegalZoom – $149 + state fees
- Comprehensive formation and legal support
- Additional business services available
- Established presence in Arkansas
DIY Option: File directly with Arkansas Secretary of State
- $45 total cost for LLC formation
- Complete control over the process
- Requires understanding of Arkansas requirements
The Bottom Line: The $4-145 difference between partnership and professional LLC formation is negligible compared to the liability protection and professional credibility you gain.
Jake Lawson has guided over 1,200 entrepreneurs through U.S. business formation, including 80+ Arkansas businesses across industries from agriculture to technology. His independent analysis helps founders choose the right structure without sales pressure or hidden agendas.