How to Form a Partnership in Delaware
Key Differences: Partnership vs. LLC
While both partnerships and LLCs are pass-through entities, they differ significantly in liability, formation, and cost. Understanding these differences helps you choose the right structure.
Liability Protection
In a general partnership, all partners have unlimited personal liability. In an LLC, all members have limited liability protection by default—creditors cannot pursue members' personal assets. Limited partnerships and LLPs offer partial or full liability protection depending on the partner's role.
Formation and Filing
General partnerships require only a DBA filing with the county prothonotary (no state filing required). LPs and LLPs require formal registration with the Delaware Division of Corporations. LLCs also require a certificate of formation filed with the Division of Corporations. Both LPs and LLCs incur state filing fees; GPs do not.
Annual Costs
General partnerships have no annual state tax or filing fee. LPs and LLCs must pay an annual franchise tax of $300 (plus $75 per registered series for LLCs) under 6 Del. C. § 18-1107. LLCs may also incur higher formation costs due to the certificate of formation filing fee.
Management and Flexibility
Partnerships are managed by general partners (or all partners in a GP). LLCs offer more flexibility: members can choose manager-managed or member-managed structures. LLCs also allow for more complex capital structures and profit-sharing arrangements without triggering adverse tax consequences.
Tax Treatment
Both partnerships and LLCs are pass-through entities by default. However, LLCs can elect to be taxed as S-corporations or C-corporations, whereas partnerships cannot. This flexibility can reduce self-employment tax for LLC members.
Formation Requirements for Delaware Partnerships
Step 1: Choose Your Partnership Type
Decide whether you need a general partnership, limited partnership, or limited liability partnership. Your choice depends on liability protection needs, management structure, and whether you want formal state registration.
If you want personal liability protection and are forming with multiple partners, an LP or LLP is preferable. If you want maximum liability protection and flexibility, consider an LLC instead (though this guide focuses on partnerships).
Step 2: Develop a Partnership Agreement
A written partnership agreement is essential, even though Delaware does not require it by statute. The agreement should specify:
- Names and addresses of all partners
- Capital contributions from each partner
- Profit and loss allocation percentages
- Management authority and decision-making procedures
- Rights and responsibilities of general vs. limited partners (if applicable)
- Procedures for admitting new partners
- Buyout and exit provisions
- Dissolution and winding-up procedures
- Dispute resolution mechanisms
Delaware law allows oral or implied partnership agreements, but a written agreement prevents misunderstandings and provides clarity if disputes arise. Have an attorney review your agreement to ensure it complies with Delaware law and reflects your intentions.
Step 3: Register with the Delaware Division of Corporations (LPs and LLPs Only)
For Limited Partnerships:
File a Certificate of Limited Partnership with the Delaware Division of Corporations. You can file online through the eCorp portal at https://icis.corp.delaware.gov/eCorp/ or by mail.
The certificate must include:
- Name of the limited partnership (must include "L.P." or "Limited Partnership")
- Address of the principal place of business
- Name and address of the registered agent in Delaware
- Name and address of at least one general partner
- Effective date of formation (if not the filing date)
For Limited Liability Partnerships:
File a Statement of Qualification (or equivalent registration document) with the Division of Corporations. The statement must identify the partnership, designate a registered agent in Delaware, and confirm that the partnership elects LLP status.
Filing Fees (2026):
Check the current fee schedule at https://corp.delaware.gov/fee/. As of August 2024, the fee for filing a certificate of limited partnership is typically $110 for standard processing. Limited liability partnership statement of qualification filing fees vary; consult the fee schedule or call the Division of Corporations at (302) 739-3073.
Processing Time:
Standard processing typically takes 1–2 business days. Expedited services are available for an additional fee.
Step 4: File a DBA Certificate (General Partnerships and All Partnerships Operating Under an Assumed Name)
If your partnership operates under a name other than the partners' legal names, you must file a DBA (Doing Business As) certificate with the county prothonotary in the county where the partnership's principal place of business is located.
For example, if partners John Smith and Jane Doe form a partnership called "Smith-Doe Consulting," they must file a DBA certificate in the appropriate Delaware county.
DBA Filing Requirements:
- Partnership name
- Assumed business name
- Address of principal place of business
- Names and addresses of all partners
- Effective date
Cost and Processing:
DBA filing fees vary by county. Contact the county prothonotary's office for current fees and processing times. Most counties process DBA filings within 5–10 business days.
Step 5: Obtain an Employer Identification Number (EIN)
Apply for an Employer Identification Number (EIN) from the IRS, even if your partnership has no employees. You need an EIN to:
- Open a business bank account
- File partnership tax returns (Form 1065)
- Hire employees
- Obtain business licenses and permits
Apply online at https://www.irs.gov/ein or by mail using Form SS-4. Online applications are typically approved immediately.
Step 6: Register for Delaware Business License and Taxes
Delaware Business License:
Most businesses operating in Delaware must obtain a state business license from the Delaware Division of Revenue. Apply online at https://revenue.delaware.gov/ or contact the Division of Revenue at (302) 577-8660.
Gross Receipts Tax Registration:
Delaware imposes a gross receipts tax on businesses operating in Delaware (rates vary by industry, approximately 0.0945%–1.9914%). Register with the Division of Revenue when you obtain your business license.
No Sales Tax:
Delaware has no sales tax, which is a significant advantage for retail and e-commerce businesses.
Step 7: Obtain Professional Licenses and Permits (If Applicable)
If your partnership operates in a regulated industry (law, accounting, healthcare, real estate, etc.), obtain the required professional licenses. Contact the relevant Delaware regulatory board or agency.
Partnership Agreement: Essential Terms and Provisions
A comprehensive partnership agreement protects all partners and clarifies expectations. Delaware law does not mandate specific agreement terms, but best practices include:
Capital Contributions and Ownership
Specify each partner's initial capital contribution (cash, property, or services). Clearly state ownership percentages and whether they correspond to profit-sharing percentages or are separate.
Example: "Partner A contributes $50,000 cash and owns 50% of the partnership. Partner B contributes $50,000 cash and owns 50% of the partnership."
Profit and Loss Allocation
Define how profits and losses are allocated among partners. This need not equal ownership percentages. For example, a limited partner might own 30% but receive only 20% of profits if the agreement specifies.
Ensure the allocation complies with the IRS "substantial economic effect" test to avoid adverse tax consequences.
Management and Decision-Making
In a general partnership, all partners have equal management authority unless the agreement specifies otherwise. In an LP, only general partners manage the business. Clearly define:
- Who has authority to sign contracts, hire employees, and make major decisions
- Which decisions require unanimous consent (e.g., admitting new partners, selling the business)
- Voting procedures and quorum requirements
Distributions and Draws
Specify when and how partners receive distributions of profits. Distinguish between:
- Guaranteed payments: Fixed amounts paid to partners regardless of partnership profitability (treated as partnership expenses)
- Distributions: Payments from partnership profits after expenses
Admission of New Partners
Describe the process for admitting new partners. Require unanimous consent or a majority vote? Can existing partners sell their interests to outsiders, or must new partners be approved by all partners?
Buyout and Exit Provisions
Include a buy-sell agreement specifying what happens if a partner wants to exit, retires, becomes disabled, or dies. Options include:
- Cross-purchase agreement: Remaining partners buy the departing partner's interest
- Entity redemption: The partnership buys the departing partner's interest
- Right of first refusal: Remaining partners have the right to match any outside offer
Dissolution and Winding Up
Specify the process for dissolving the partnership, including:
- Conditions triggering dissolution (death, withdrawal, bankruptcy of a partner, or mutual agreement)
- Who manages the winding-up process
- How assets are distributed after liabilities are paid
- Timeline for final distributions
Registered Agent and Registered Office Requirements
Registered Agent (LPs and LLPs Only)
Delaware law requires LPs and LLPs to maintain a registered agent in Delaware with a registered office. The registered agent is the official point of contact for legal documents and service of process.
Your registered agent can be:
- An individual resident in Delaware
- A Delaware corporation, LLC, or partnership
- A professional registered agent service
Registered Agent Responsibilities (6 Del. C. § 18-104):
- Maintain a business office in Delaware open during normal business hours
- Accept service of process and legal documents on behalf of the partnership
- Forward documents to the partnership promptly
- Maintain current contact information for the partnership
Registered Office Address:
The registered office must be a physical street address in Delaware (not a P.O. box). Many partnerships use a registered agent service to maintain compliance.
Cost:
Professional registered agent services typically charge $50–$150 annually. The Division of Corporations does not charge a separate fee for maintaining a registered agent, but filing fees apply when you register the partnership.
Tax Obligations and Compliance
Federal Tax Filing
Form 1065 (U.S. Return of Partnership Income):
All partnerships must file Form 1065 with the IRS, even if the partnership has no income or losses. The partnership itself does not pay income tax; instead, it reports each partner's distributive share on Schedule K-1.
Each partner receives a Schedule K-1 showing their share of income, losses, deductions, and credits. Partners report this information on their individual tax returns.
Filing Deadline:
Form 1065 is due on the 15th day of the third month after the close of the partnership's tax year (typically March 15 for calendar-year partnerships). Extensions are available.
Delaware State Tax Obligations
Graduated Personal Income Tax (2.2%–6.6%):
Delaware residents who are partners must pay state income tax on their distributive share of partnership income. The tax is graduated based on income level. Non-resident partners may owe Delaware tax on income earned from Delaware sources.
Gross Receipts Tax:
Partnerships operating in Delaware must pay gross receipts tax on revenue generated in Delaware. Rates vary by industry (approximately 0.0945%–1.9914%). Register with the Division of Revenue and file annual returns.
No Partnership-Level Tax:
Unlike some states, Delaware does not impose a partnership-level income tax or franchise tax on general partnerships. However, LPs and LLPs may be subject to annual reporting requirements.
Self-Employment Tax
All partners must pay self-employment tax (Social Security and Medicare) on their distributive share of partnership income. Self-employment tax is calculated on Form SE (Self-Employment Tax) and is approximately 15.3% of net earnings.
Estimated Tax Payments:
Partners must make quarterly estimated tax payments if they expect to owe $1,000 or more in federal income tax. Estimated tax deadlines are:
- April 15
- June 15
- September 15
- January 15
Filing and Registration Checklist
Use this checklist to ensure you complete all required steps:
Before Formation:
- Choose partnership type (GP, LP, or LLP)
- Develop written partnership agreement
- Decide on partnership name and check availability
- Identify registered agent (for LPs and LLPs)
Formation and Registration:
- File Certificate of Limited Partnership or Statement of Qualification with Delaware Division of Corporations (LPs and LLPs only)
- File DBA certificate with county prothonotary (if using assumed name)
- Apply for EIN from IRS
- Obtain Delaware business license from Division of Revenue
- Register for gross receipts tax (Division of Revenue)
Post-Formation Compliance:
- Open business bank account
- Obtain professional licenses (if applicable)
- Obtain business insurance
- File Form 1065 with IRS annually
- Provide Schedule K-1 to each partner
- File Delaware state tax returns (if applicable)
- Renew registered agent status annually (LPs and LLPs)
Dissolution and Winding Up
Grounds for Dissolution
A Delaware partnership dissolves upon:
- Mutual agreement of all partners
- Death or withdrawal of a partner (unless the partnership agreement provides otherwise)
- Bankruptcy or incapacity of a general partner
- Breach of the partnership agreement
- Court order
- Expiration of a term specified in the partnership agreement
Winding-Up Process
Upon dissolution, the partnership enters a winding-up phase. During this period:
- The partnership ceases new business operations
- Remaining partners (or a designated liquidator) collect partnership assets
- Liabilities and debts are paid
- Remaining assets are distributed to partners according to the partnership agreement
Filing Dissolution Documents
For LPs and LLPs, file a Certificate of Cancellation with the Delaware Division of Corporations to formally terminate the partnership's registration. This document confirms that the partnership has dissolved and wound up its affairs.
Cost:
Filing fees for certificates of cancellation vary; check the Division of Corporations fee schedule at https://corp.delaware.gov/fee/.
Comparison: Partnership vs. LLC vs. Corporation
| Feature | General Partnership | Limited Partnership | LLC | Corporation |
| Liability Protection | None (all partners liable) | Limited partners protected; general partners liable | All members protected | All shareholders protected |
|---|---|---|---|---|
| Formation Filing Required | No (DBA only) | Yes (Certificate of LP) | Yes (Certificate of Formation) | Yes (Certificate of Incorporation) |
| Annual State Tax/Fee | None | Varies | $300 + $75 per series | Varies |
| Registered Agent Required | No | Yes | Yes | Yes |
| Management Flexibility | All partners manage equally | General partners |