Jake Lawson here. I’m going to be brutally honest with you: In my 15+ years helping entrepreneurs launch businesses, general partnerships rank dead last on my recommendation list. They’re the business world’s equivalent of bungee jumping without checking the cord first. But since you’re here asking about them, I’ll give you the complete rundown—including when they occasionally make sense and the step-by-step process if you’re determined to go this route.
What Is a General Partnership in North Dakota?
A general partnership is what happens when two or more people decide to go into business together and shake hands on it. Literally. No state filings required, no incorporation documents, no formal registration. You and your partner(s) simply agree to work together with the intent to make money, and boom—you’re legally a general partnership.
Here’s the catch that blindsides most people: You and every partner are personally liable for everything the business does. Every debt, every lawsuit, every mistake any partner makes in the course of business can come after your personal assets.
I’ve seen partnerships where one partner’s poor decision cost everyone their houses. That’s not hyperbole—that’s Wednesday in my practice.
The Partnership Landscape: Your Business Structure Options
Before we dive deeper into general partnerships, let’s establish the full menu of options for multi-owner businesses in North Dakota:
If you’re flying solo:
- Sole proprietorship (simple but risky)
- Single-member LLC (smart choice for most)
- Corporation (for complex situations)
If you have partners:
- General partnership (what we’re discussing)
- Multi-member LLC (what I usually recommend instead)
- Corporation (for larger, complex businesses)
- Limited partnership (specialized, rarely used)
- Limited liability partnership (mainly for professionals like lawyers)
Jake’s take: 95% of the partnerships I see should be LLCs instead. Same tax benefits, similar paperwork, but with actual asset protection.
General Partnership Advantages (The Short List)
Immediate Formation
You can start a general partnership during your lunch break. No state filings, no approval process, no waiting periods. If you and your buddy decide to start a landscaping business over coffee this morning, you’re legally partners by dinner.
Pass-Through Taxation
Your partnership itself doesn’t pay federal income taxes. Instead, profits and losses “pass through” to each partner’s personal tax return. This avoids the double taxation that corporations face.
Tax mechanics: The partnership files Form 1065 (informational only), then each partner receives a K-1 showing their share of profits/losses to report on their personal Form 1040.
Minimal Compliance Requirements
No annual reports to file with North Dakota, no board meetings to hold, no corporate formalities to maintain. You run your business, file your taxes, and that’s about it.
Shared Financial Burden
Multiple partners mean multiple people contributing capital, skills, and resources. Instead of shouldering everything alone, you can pool resources and expertise.
General Partnership Disadvantages (The Scary List)
Unlimited Personal Liability (The Big One)
Every partner is personally responsible for all partnership debts and obligations. If your partner signs a $100,000 equipment lease without telling you, guess what? You’re on the hook for the full amount if the partnership can’t pay.
Real example from my files: Two partners started a construction business. Partner A got a DUI while driving the company truck and injured someone. Partner B, who wasn’t even in the state when it happened, nearly lost his house in the resulting lawsuit.
Joint and Several Liability
This legal concept means creditors can go after any partner for the full amount of partnership debts—not just their percentage share. If you own 20% of a partnership that owes $50,000, creditors can still pursue you for the entire $50,000 if your partners can’t pay.
Partnership Disputes
Without clear agreements, partners often disagree about money, responsibilities, and business direction. I’ve mediated countless partnership disputes that destroyed both the business and personal relationships.
Credibility Issues
Banks, vendors, and customers often view general partnerships as less professional than LLCs or corporations. This can impact your ability to secure financing, favorable vendor terms, or premium clients.
Difficult Exit Strategy
Want to sell your interest or bring in new partners? General partnership changes require unanimous consent and often complex restructuring. Compare this to LLCs, where ownership transfers are much more straightforward.
North Dakota Partnership Alternative: Why risk everything with a partnership when an LLC gives you the same tax treatment plus liability protection? North Dakota’s $135 LLC fee beats losing your personal assets when your business partner makes a catastrophic mistake.
Multi-Member LLC vs. General Partnership: The Real Comparison
Since these two structures compete for the same market (multi-owner businesses), let’s look at the honest comparison:
| Factor | General Partnership | Multi-Member LLC |
| Formation cost | $0 | $135 (ND state fee) |
| Personal liability | Unlimited | Protected |
| Tax treatment | Pass-through (Form 1065) | Identical pass-through |
| Credibility | Limited | Professional |
| Banking | Requires partnership agreement | Standard business account |
| Annual requirements | None (state level) | Annual report ($50) |
| Flexibility | Limited | High |
| Exit strategy | Complex | Straightforward |
Bottom line: For $135 upfront and $50 annually, an LLC gives you everything a partnership offers plus liability protection and professional credibility. The math is obvious.
When General Partnerships Actually Make Sense
I’m not completely anti-partnership. There are legitimate (though rare) scenarios where they work:
Very short-term ventures:
- Single project collaborations
- Event-based businesses with defined end dates
- Market testing with minimal capital at risk
Extremely tight budgets:
- Partners literally cannot afford $135 LLC filing fee
- No assets worth protecting (though this is usually temporary)
Professional partnerships transitioning to LLP:
- Lawyers or accountants forming temporary partnerships before converting to limited liability partnerships
Family businesses with existing asset protection:
- Partners already have assets protected through trusts or other structures
- Family members with aligned interests and deep trust
Step-by-Step: Forming Your North Dakota General Partnership
If you’ve weighed the risks and decided to proceed, here’s the complete roadmap:
Phase 1: Foundation Planning
Choose your partners carefully This is the most critical decision you’ll make. Consider:
- Complementary skills and experience
- Aligned values and work ethics
- Financial stability and commitment level
- Communication styles and conflict resolution approaches
Define ownership structure Determine each partner’s:
- Ownership percentage
- Capital contributions (money, equipment, expertise)
- Ongoing responsibilities and roles
- Decision-making authority
Establish business fundamentals
- Business model and revenue streams
- Target market and competitive strategy
- Operating procedures and quality standards
- Growth plans and exit strategies
Phase 2: Legal Documentation
Draft a comprehensive partnership agreement This is non-negotiable, even though North Dakota doesn’t require it. Your agreement should address:
- Ownership and capital: Each partner’s percentage, initial contributions, future capital requirements
- Management structure: Who makes what decisions, voting procedures, deadlock resolution
- Profit and loss allocation: How money flows to partners, timing of distributions
- Partner responsibilities: Daily duties, time commitments, performance expectations
- Dispute resolution: Mediation procedures, arbitration clauses, conflict escalation
- Changes in partnership: Adding partners, removing partners, ownership transfers
- Dissolution procedures: Triggers for dissolution, asset distribution, non-compete agreements
Download template: I’ve seen too many partnerships fail due to inadequate agreements. While I can’t provide legal advice, a comprehensive template from a business attorney is worth every penny.
Phase 3: Business Name and Registration
Choose your business name You have two options:
- Use partners’ legal names: “Smith & Johnson Partnership” (no additional registration required)
- Create a fictitious name: “Dakota Digital Solutions” (requires DBA filing)
Register your DBA (if using fictitious name)
- File Partnership Fictitious Name Certificate online through North Dakota FirstStop
- Fee: $25 for two partners, plus $3 for each additional partner
- Processing time: 1-2 business days online
Name selection tips:
- Check trademark databases for conflicts
- Verify domain name availability
- Ensure name reflects your business image
- Avoid names that limit future growth
Phase 4: Federal Tax Setup
Obtain your EIN (required) General partnerships must have an Employer Identification Number for tax purposes:
- Apply online at IRS.gov (free and immediate)
- Avoid third-party services that charge fees
- Use EIN on all business documents and tax filings
- Required for partnership tax return (Form 1065)
Understand tax obligations
- Partnership files informational Form 1065 annually
- Each partner receives Schedule K-1 showing their share
- Partners pay taxes on their allocation, regardless of distributions received
- Partners may need to make quarterly estimated payments
Phase 5: Licensing and Compliance
Research licensing requirements North Dakota doesn’t require general business licenses, but specific industries do:
- Professional services (contractors, healthcare, legal)
- Food service and hospitality
- Transportation and logistics
- Financial services
Check local requirements
- City business licenses
- County permits
- Zoning compliance
- Health department approvals
Obtain necessary insurance
- General liability (essential for customer-facing businesses)
- Professional liability (for service providers)
- Business property insurance
- Workers’ compensation (if hiring employees)
Phase 6: Banking and Financial Setup
Open business bank account You’ll need:
- Partnership agreement signed by all partners
- EIN confirmation letter
- DBA certificate (if applicable)
- Government-issued ID for all partners
Banking tips from experience:
- Shop around—fees and services vary widely
- Look for banks experienced with partnerships
- Consider separate accounts for different business functions
- Set up online banking with appropriate access levels
Establish accounting system
- Choose accounting software (QuickBooks, FreshBooks, etc.)
- Set up chart of accounts for partnership taxation
- Create processes for tracking partner contributions and distributions
- Plan for K-1 preparation and distribution
Ongoing Partnership Management
Financial Management Best Practices
Separate business and personal finances
- Use business accounts exclusively for partnership activities
- Never mix personal and business expenses
- Maintain detailed records of all transactions
- Document partner contributions and withdrawals
Regular financial reporting
- Monthly profit and loss statements
- Quarterly partner distribution calculations
- Annual budget planning and review
- Regular cash flow projections
Communication and Decision-Making
Establish regular meetings
- Weekly operational check-ins
- Monthly financial reviews
- Quarterly strategic planning sessions
- Annual partnership agreement reviews
Document important decisions
- Keep written records of major choices
- Update partnership agreement as needed
- Maintain clear communication channels
- Address conflicts promptly and professionally
Tax Implications and Strategies
Partnership Tax Basics
Form 1065 filing requirements
- Due March 15 (with extensions available)
- Informational return only—partnership pays no federal taxes
- Must provide K-1s to all partners by March 15
- Penalties for late filing can be substantial
Partner tax obligations
- Report partnership income on personal returns
- Pay self-employment taxes on active partnership income
- May need quarterly estimated payments
- Consider impact on personal tax situation
Tax Planning Opportunities
Optimize distributions
- Time distributions to minimize partner tax burden
- Consider guaranteed payments for active partners
- Plan for varying income levels among partners
- Coordinate with partners’ personal tax strategies
Expense management
- Maximize legitimate business deductions
- Properly categorize equipment purchases
- Track business use of vehicles and home offices
- Maintain detailed expense documentation
Common Partnership Pitfalls (And How to Avoid Them)
Mistake #1: Inadequate Partnership Agreement
The problem: Handshake deals lead to disputes when money gets involved. The solution: Invest in comprehensive legal documentation upfront.
Mistake #2: Unequal Commitment Levels
The problem: One partner works 60 hours/week while another treats it as a hobby. The solution: Define expectations clearly and include performance metrics in your agreement.
Mistake #3: Poor Financial Management
The problem: Mixing personal and business finances, inadequate record-keeping. The solution: Professional accounting setup and strict financial protocols.
Mistake #4: No Exit Strategy
The problem: Partners assume they’ll work together forever. The solution: Plan for death, disability, retirement, and voluntary departures.
Mistake #5: Ignoring Liability Exposure
The problem: “It won’t happen to us” mentality. The solution: Adequate insurance and serious consideration of LLC conversion.
When to Convert to an LLC
Most successful partnerships eventually convert to LLCs. Watch for these triggers:
Revenue milestones:
- Annual revenue exceeding $100,000
- Significant business assets or inventory
- Planning major equipment purchases or facility leases
Risk factors:
- Customer complaints or liability concerns
- Operating in litigation-prone industries
- Working with expensive client property or equipment
Growth indicators:
- Adding employees
- Seeking outside investment
- Expanding to multiple locations
- Planning eventual sale of business
Conversion process:
- Dissolve existing partnership
- Form new LLC
- Transfer assets and liabilities
- Update all contracts and agreements
- Notify customers, vendors, and government agencies
Frequently Asked Questions from Real Clients
Q: Can we add partners later without reforming the partnership? A: Yes, but it requires unanimous consent from existing partners and amending your partnership agreement. Much more complex than adding LLC members.
Q: What happens if one partner wants to leave? A: Depends on your partnership agreement. Without clear terms, the departing partner might force dissolution of the entire business.
Q: Are we required to have equal ownership? A: Not at all. Partners can have any ownership percentages you agree upon, as long as they add up to 100%.
Q: Can a partnership hire employees? A: Yes, but you’ll need workers’ compensation insurance and must handle employment taxes. Consider the liability exposure of having employees.
Q: What if we want to bring in outside investors? A: General partnerships aren’t investor-friendly structures. You’d likely need to convert to an LLC or corporation first.
My Professional Recommendation
After 15+ years in this business, here’s my unfiltered advice:
Skip the general partnership.
I know that sounds harsh, but I’ve cleaned up too many partnership disasters to recommend them with a straight face. The liability exposure alone should scare you away, and when you add the credibility issues and exit strategy problems, it’s hard to justify.
What I recommend instead: Form a multi-member LLC in North Dakota. You’ll get:
- Identical tax treatment to a partnership
- Complete personal asset protection
- Professional credibility
- Banking and vendor flexibility
- Simple ownership transfers
- Clear dissolution procedures
The real cost comparison:
- General partnership: $0 upfront, unlimited liability risk
- North Dakota LLC: $135 upfront, $50 annually, full protection
For less than $4 per month per partner, you can protect everything you’ve worked to build. That’s cheaper than coffee for most people.
When I might consider a partnership:
- Temporary, single-project collaboration under $25,000
- Professional practice converting to LLP within 6 months
- Family business with existing comprehensive asset protection
North Dakota Resources
Government agencies:
- North Dakota Secretary of State: sos.nd.gov
- North Dakota Small Business Development Center: ndsbdc.org
- North Dakota Department of Commerce: commerce.nd.gov
Professional resources:
- North Dakota CPA Society
- North Dakota Bar Association
- SCORE North Dakota chapters
- Local chambers of commerce
The Bottom Line
General partnerships are simple to form but dangerous to operate. They’re the business equivalent of driving without insurance—fine until something goes wrong, then catastrophic.
In North Dakota, you can get LLC protection for $135 upfront and $50 per year. That’s less than most people spend on lunch in a month. The protection you gain is worth infinitely more than the cost.
If you’re determined to proceed with a partnership: Follow the steps above, invest in comprehensive legal documentation, carry adequate insurance, and plan your LLC conversion from day one.
If you’re smart: Start with an LLC and save yourself the headache, liability, and eventual conversion costs.
The choice is yours, but after 15 years of helping entrepreneurs succeed (and cleaning up the messes when they don’t), I know which path I’d choose.
Questions about North Dakota business formation? I’ve probably answered it before. Drop me a line for straight advice—no sales pitch, no upsells, just practical guidance from someone who’s seen it all.