Self-Employed House Cleaner’s Deep Guide to Cleaning Business Partnerships

3 business partners sitting together and working on business papers. — Photo credit: David Castillo Dominici

When some house cleaners set up a business partnership with another house cleaner, they imagine the partnership like a co-worker situation.

They think of how they will have someone to share the workload with them.

Other house cleaners daydream about the opportunities they will have to grow a bigger business.

They picture working together with trusted business partners toward a richer life.

It’s true a well run partnership can add joy and wealth to your life.

Also true is a partnership where the partners don’t share the same vision or pull their weight can drain your trust and your bank account.

A bad business partnership can haunt your life for years.

The good news is with careful planning and a well-written partnership agreement, you have a better chance of setting up a business partnership that brings joy and wealth to your life.

4 Types of Business Partnerships

There are 4 main types of business partnerships you can use for your cleaning business. Each one has its pros and cons.

Take your time, research and become familiar with them if you are considering joining forces with another house cleaner.

1 – General Partnerships

General partnerships are the simplest form of partnership. Similar to a sole proprietorship, general partnerships are not incorporated businesses.

There are few legal requirements for starting general partnerships. They are easy to start and easy to dissolve if any of the partners declare bankruptcy, divorce or die.

In nearly all US states, a general partnership is created when two or more owners form an oral or written agreement to start a business together.

Which means just talking about partnering and then working together as partners means you have started a general partnership.

In a general partnership, income and responsibility are split equally between partners. Losses and liability are also equally split between partners.

All or both general partners are financially on the hook for actions taken by one partner(s), so it’s important to choose your partner or partners with great care.

A written partnership agreement drawn up by a lawyer or experienced business mediator is important for both or all partners.

Without a written partnership agreement that covers rights and responsibilities for each partner, an unincorporated general partnership can leave you open to business losses and liabilities created by your business partner(s).

As a rule, Partnership Agreements for general partnerships do not have to be filed with state governments.

General Partnership Licensing and Business Names

General partners can license their business in their city, county or state just like sole proprietors.

In many US states, general partners are not required to file any documents with the Secretary of State like incorporated businesses.

However, it is advisable for general partners to file a trade name or “Doing Business As” (DBA) name in the county where the business is based.

General partnerships in these states should register a trade name or DBA with their local county clerks:

In Louisiana, Trade Name or DBA registration rules vary by parish.

General partnerships in these states should register their DBA name with their local town or city clerk.

The remaining 22 states have a state filing requirement for trade names or DBAs.

2 – Limited Partnerships (LP)

A limited partnership is a general partnership with one or more active partner(s) plus one or more limited partner(s) who are silent investors. The active partner(s) run the business and take care of daily operations.

All active partners in a limited partnership are open to unlimited personal and financial liability just like general partnerships.

Non-active or limited partners can invest in a business and gain from their investment, but they can’t lose more than they invest.

Their losses are confined to the same percentage of the business they own as limited partners. If a limited partner invests 10 percent, their losses are limited to 10 percent.

Plus limited partners are not personally liable for business losses like debts or lawsuits against the partnership.

Limited Partner Licensing And Business Names

Limited partnerships require filing paperwork with the state. There are filing fees for Certificates of Limited Partnership in each state.

The state certified business name of a limited partnership, must contain these terms or abbreviations: “Limited Partnership”, “Limited”, “Company”, “L.P.”, “Lp”, “Ltd.”, or “Co.”

For example, if you’re part of a general partnership and decide to take on investors, you need to apply for a Certificate of Limited Partnership in your state.

If your business name as general partners was Big Sky House Cleaning, after you get limited partnership certification, you can change your business name to Big Sky House Cleaning, Ltd. or Big Sky House Cleaning, LP.

3 – Limited Liability Limited Partnerships (LLLP)

A type of Limited Partnership certified by the state that gives all partners limited liability from debts and lawsuits. As of 2022, This type of partnership can only be set up and recognized in these US states and territories:

California does not have laws for an LLLP but recognizes foreign (out of state) LLLPs.

Illinois does not have LLLP laws but allows the formation of an LLLP under the Revised Uniform Partnership Act.

4 – Multi-Member LLCs

Two or more people can choose to partner under the umbrella of a Limited Liability Company (LLC). Multi-member LLCs provide liability protection from business debts and lawsuits for all members.

Like a limited partnership, a multi-member LLC can have active partners and investor partners.

One member (or several members) can act as managing member(s) overseeing the day to day operations of the business.

Some members can simply work in the business. Still other members can choose to not be involved in the running of the business at all.

Limited liability companies with two or more members are seen as partnerships by the IRS, unless LLC members file IRS Form 8832 and choose to be treated as a corporation.

Multi-Member LLCs are allowed in all 50 states.

Find out more about Multi-Member LLCs from LLC University.

Partnering With Your Spouse

What if your business partner is your husband or wife? Are you automatically partners in the eyes of the law or can you operate your house cleaning business as a sole proprietorship?

According to the IRS, a married couple that jointly owns and operates an unincorporated business together are in a partnership.

Sole proprietorships and general partnerships are both unincorporated businesses.

This is true whether you have a formal partnership agreement between you or not.

Even if you run a general partnership as a married couple, things can get pretty complex at tax time with numerous forms to file with your state and the federal government like IRS Form 1065 and Schedule K-1.

Married With A Sole Proprietorship

If you own and operate your business in a community property state, married couples can choose to run their business as a sole proprietorship. The married couple must be the only owners and share in all profits and losses.

The 9 community property states are:

Running a community property state sole proprietorship simplifies the amount of paperwork you have to deal with at tax time.

The downside is taxes are filed under only one spouse’s name, even though both shared in the profits and losses of the business.

Which means only one spouse receives credit for Medicare and Social Security contributions and the other does not.

Related: Get more details about partnership taxes in How To Get Ahead Of The Game With Partnership Taxes

The Qualified Joint Venture Option

If you and your spouse both own and work in the business you can choose to run your business as a Qualified Joint Venture (QJV) instead of a partnership or a community property state sole proprietorship.

Running your business as a QJV would allow you to avoid the yearly partnership tax dance with the IRS and state tax departments.

With a QJV, a married couple in business together gets to file taxes as joint sole proprietors instead of partners. That would include filing separate quarterly self-employment taxes.

A QJV would allow both of you to get credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and Medicare benefits are based.

According to the IRS, in most cases, choosing a QJV will not increase the total tax owed on a couple’s joint return.

When Your Business Partner Is Your Friend or Family

If the idea of partnering with friends or family makes you think of a comfortable pair of slippers, just be aware that sometimes slippers have burrs, don’t fit after a while or wear out.

Partnering with friends or family can also challenge you with unexpected problems.

With friends and family members, you know the other person well and believe you’re starting out on the same page.

Then disagreements, misunderstandings and deceptions can rub you both the wrong way.

You may grow apart in your vision of how to run the business. Then both of you can drift in different directions and the partnership just falls apart.

An article on NerdWallet, “Starting a Business With a Friend: Important Dos and Don’ts shares tips on how to keep a partnership with friends and family healthy and stable.

The 3 Do’s they recommend are worth highlighting:

Do communicate often.
Do establish clear roles from the beginning.
Do get your business plan in writing.

When partnering with friend or family, it’s too easy to get all comfy and cozy and forget about the hard parts of running a business together. That is, until a hard part gets stuck in your foot.

The best way to handle the hard parts and the comfy parts of your partnership with friends and family is to set up clear rules⎯⎯⎯in writing⎯⎯⎯before you get started.

Like one of the people interviewed in the article said:

“Don’t start a business on promises alone.”

Why You Need A Partnership Agreement

A partnership agreement is the business house protecting both (or all) partners.

Partnership agreements are legal documents that set clear rules for how your business partnership is run.

Partnership agreements take into account what the partners value, what they can add to the business and what they want from the business.

Partnership agreements are also about consequences since they are legally binding and hold up in court.

Partnership agreements are usually set up at the beginning of your business while you and your partner(s) are still in the “honeymoon” phase of your relationship.

That is the best time to hash out how you plan to handle what happens in your business if one of you is disabled, gets a divorce, dies or decides not to show up for work for weeks on end.

Basic Partnership Agreements include:

Partners’ personal and contact information like name, address, email and phone number.
How much each partner contributes to the business and their share of the business.
How decisions will be made (voting, consensus, one decision maker for minor decisions who consults with other partner(s) for major decisions)?
How long you want the partnership to last (short-term joint venture or long-term)?
Who takes care of major tasks in the business like:
cleaning customers homes
quality control
scheduling
bookkeeping and banking
walkthroughs and sales
marketing the company through its website and social media
How finances are handled, rules about joint bank accounts and how to divide profits and losses.
What happens if a partner is disabled, has to care full time for a family member, gets a divorce, dies or drops out of sight?
Non-disclosure agreements relating to the partnership.
How you plan to take care of partner disputes (mediation, arbitration or lawsuits)?
How much notice a partner must give if they plan to leave the partnership (3 months? 6 months? A year)?
How to come up with a value for each partner’s share of the business in case they want to leave, plus payment terms that don’t bankrupt the business?
A non-disparagement clause that keeps former partners from airing dirty laundry about the business when they leave.
Non-compete agreements between partners in case one partner leaves and wants to start a competing business.

Don’t Hesitate To Do Background Checks

Some cautious people will do a background check on a potential business partner.

This is especially true if they are thinking of joining forces with someone they don’t know well or someone who already has a business.

You can go online and check business licenses and DBA registrations since those are public records.

Check to make sure their business insurance and bonding is current and the coverage fits a business their size.

Also look for a history of lawsuits, criminal records or legal judgements against a potential partner.

Digging Deeper

For a really deep background check, it pays to hire a private investigator to do a background check for you.

Spending a few hundred dollars now, can save you thousands later.

If you want to partner with an existing business, in addition to background checks on the owner(s) and perhaps some management staff, you need to look over their accounting books and records.

If you’re not a numbers person, hire an accountant to look over their finances with you.

It’s also reasonable to take a close look at their current office and storage space, then talk to employees and contractors to get a feel for how all parts of their business are run.

Keep Multiple Agreement Copies

Once you and your partner(s) complete your agreement, make sure everyone has both digital and paper copies of the partnership agreement.

Extra digital copies should also be kept in a reliable online storage site like Dropbox, Backblaze or Open Drive to prevent loss in case of fire, theft or natural disaster.

Each partner should keep paper and digital copies of the agreement (plus any changes that are made in the agreement each year) in their own personal storage sites just to be safe.

Banking With A Business Partner

You’ve gotten deep into trust territory when you share a bank account with a business partner.

A lot of the things that can go right (or wrong) in a partnership happen around managing money and banking.

This is one area of the partnership agreement where you need crystal clear rules—as in every single detail you can think of mapped out before you start your business partnership.

Details like:

Who will manage the bank accounts day to day?
Which expenses will be paid from the bank accounts?
Will the partnership have one joint business account or a set of linked accounts?
Who can withdraw funds from the accounts and what are the rules for withdrawals?
What happens to money in the accounts if the partnership ends?

Should You Get A Joint Account?

Sharing a joint business account with your partner(s) can be a good idea if you take care to set it up with clear rules.

Banking rules should be part of your partnership agreement before you open the account.

According to Chris Reich, a partnership mediation expert, both or all partners should be joint account holders.

As a joint account holder, the bank account is co-owned by both or all partners.

If one or more partners are simply be authorized users on the account, the partner who is the account holder can simply remove partners who are authorized users or signers from the account whenever they wish.

Chris Reich writes:

“…there are two ways for you to be on that account. If it is a joint account, he can’t remove you without a court order of some kind. If you are an authorized user on the account, and your partner is the account holder representing the business, you can be removed.”

Prevent “Hidden” Partner Accounts

In some states, one partner can open a business bank account without the other partner.

This means that your partner can legally deposit business funds or withdraw money from the business without your knowledge or consent.

The number and types of banking accounts should be spelled out in your partnership agreement to prevent or provide a legal remedy for “hidden” partner business bank accounts.

Reduce Your Liability

Depending on which the type of partnership, all money in a joint account can be taken by creditors to satisfy debts of one partner.

So if you have a general or limited partnership, one partner’s bad debts can wipe out your partnerships entire bank account.

That’s a lot of risk for the other partner(s) to shoulder. The best way to sidestep those risks is to convert your partnership to a limited liability type of partnership as soon as you can afford the fees for an LLLP or Multi-Member LLC.

Plus, set up a good, strong partnership agreement that covers banking and financial rules for your business from the beginning.

5 Things You’ll Need to Open A Joint Business Bank Account

Social Security numbers from all partner(s).
Employer identification number (EIN).
Partnership agreement and any documents like certificates of Limited Partnership, Limited Liability Limited Partnerships (LLLP) or Limited Liability Company (LLC) issued by your state.
Business license
Trade name or DBA Certificate

Life Insurance For Your Partnership

Sounds weird, huh? Why would a partnership need life insurance?

It’s not the partnership exactly that needs life insurance. The partners themselves need to buy life insurance policies naming the other partner(s) as beneficiaries.

Christy Bieber, a writer from the Motley Fool financial website explains in plain language why life insurance for business partners is a great idea.

Among other things, Bieber says in the event of the untimely death of a business partner, the insurance payout allows:

“…the surviving partner to buy out the deceased [partner’s] interest in the company… The family [of the deceased partner] can get their money upfront without having to manage or monitor a company they may not know much about….”

Life insurance policy payouts can give choices to the partners and their families without messy lawsuits.

Both the surviving partner(s) and the family of the deceased partner get what they need to move forward after a painful event.

Insuring the life of your business partner adds one more layer of protection to your business partnership.

Remember To Add An Exit Plan

It may seem strange to plan for this in the beginning of your partnership, but an exit plan is an important part of your partnership agreement.

Setting up an exit plan from the beginning can save you and your partner(s) lots of headaches and heartaches when the end of the road is in sight.

It’s important to talk about how you are going to dissolve the business in case working with your partner is unbearable or you simply want out?

Then add what you agreed on to your partnership agreement.

A clear exit plan outlines how you break up the partnership, how assets are divided, as well as who’s responsible for any or all debts.

Also, it’s questions like these that you’ll want to think about when you’re planning a partnership exit:

How much notice should partners give before the exit?
How will the breakup go in case a partner wants to exit?
What business restrictions will the partners face after the exit?

Don’t skip this step!

Begin thinking about how your business partnership relationship might end from the start and plan for a smooth exit.

Build And Maintain Your Business Partnership House

Business partnerships are like marriages. You start out with the warm, rosy glow of the honeymoon.

Then comes the day to day work of decisions and yes, some disagreements.

If you have the right partner, there can also be growth, mutual respect and healthy profits.

Just like marriages though, unfortunate things can happen and the partnership may break.

At the center of your partnership is your partnership agreement.

You and your partner(s) may be the face of the partnership, but your partnership agreement is the house your business lives in⎯⎯⎯a house that protects the partners.

Partnership Agreements Can Be Updated

Your partnership agreement is not set in stone. No matter where you are in the life of your partnership, your partnership agreement can be changed to fit where your partnership is now.

It’s not too late to set up or update a partnership agreement.

Plan on sitting down with your partner(s) and reviewing your partnership agreement at least once a year.

An updated partnership agreement can help you face changing conditions, smooth out rough patches in your business relationship or make a graceful exit.

A well-written partnership agreement shelters your business partnership from storms, both expected and unexpected.

Just like a house you live in, regular maintenance is key to a business partnership that brings joy and wealth to each partner.