Key Takeaways

  • Delaware Limited Partnership: Understanding the roles of general and limited partners and how they differ in terms of liability and management responsibilities.
  • Filing Steps: Clear instructions on filing the Delaware Certificate of Limited Partnership and securing a unique name and registered agent.
  • Additional Costs and Legal Documents: Filing fees, required documents, and state-specific tax requirements for Delaware LPs.
  • Franchise Tax: All limited partnerships are subject to Delaware's franchise tax and specific filing requirements.

A Delaware partnership agreement is used to establish a limited partnership (LP), the state's most common business entity. Like another common entity, the limited liability company (LLC), an LP is formed by contract and is subject to few state laws.

Types of Partnerships

  • General partnerships offer simple, flexible operation, but do not provide partners with limited liability. This means that personal assets can be seized to pay business debts, including a retirement account, home, or car. General partnerships are taxed as pass-through entities but must pay state income tax.
  • Limited partnerships offer limited liability for partners who are not involved in management (limited partners). Taxation is the same as for general partnerships.
  • Limited liability partnerships are common among professionals who may have inherent liability, such as doctors and attorneys. This structure limits their liability to the amount of their initial business investment. Taxes are the same as with other partnerships.
  • Although a limited liability company (LLC) is not a partnership, it does combine the advantages of partnerships with limited liability. They are slightly more complex to establish and operate but still fairly simple to run.

Forming a Limited Partnership

Business owners who want to create a limited partnership simply file the Delaware Certificate of Limited Partnership. Although creating a partnership agreement is recommended, this step is not required by the state.

Your LP agreement governs the relationship between partners and the terms and conditions of the business, including economic provisions and voting rights. This flexible structure can be modified to fit the needs and goals of partners and investors.

Before submitting this form, you'll need to choose a unique name for your business. Search business names through the database of the Department of State to ensure that the name you want for your partnership is not already taken.

You'll also need to name a registered agent who has a physical address in Delaware. This person is responsible for accepting service of process and other legal documents on behalf of your business. One of the partners can serve as the registered agent or you can opt to hire a professional service.

When you're ready to set up your business, you can get all the forms you need from the state's Division of Corporations.

Delaware Limited Partnership Filing Process

To form a Delaware limited partnership, the following steps are required:

  1. Choose a Name:
    Delaware mandates that the name must include the phrase "Limited Partnership" or its abbreviation. The name cannot resemble another entity's, especially words like "corporation" or "bank," which could create confusion.
  2. Registered Agent:
    A Delaware registered agent must be designated. This agent acts as the official recipient of legal documents and must have a physical address in Delaware.
  3. File the Certificate of Limited Partnership:
    This document requires basic business details, including the name of the partnership, the business address, and the general partners' names and addresses . The filing fee is $200【9†source】mited Partnership Agreement**:
    While not required, drafting a partnership agreement is highly recommended. This document outlines the partnership's operations, including the roles of the partners, capital contributions, and how profits are shared.
  4. Tax Requirements and EIN:
    LPs need to file state income tax returns and pay franchise tax. An Employer Identification Number (EIN) must be obtained from the IRS.

Management Structure of a Limited Partnership

One or more partners serve the management role in a limited partnership, known as the general partner. This person can delegate responsibilities to others, except for limited partners. He or she also carries personal liability for business debts and obligations, which means personal assets are at risk if the business is sued.

You can establish a provision in the agreement to indicate that the partnership will share these losses with the general partner provided that indemnification is possible with the business's assets. However, the LLC structure has the advantage of providing limited personal liability to its members regardless of whether they are managers.

In contrast to general partners, limited partners do not carry personal liability for business obligations and debts beyond their initial investment amount. They do not serve a management role but may vote on certain matters as shareholders.

For the purposes of establishing the roles of the general and limited partnership, management is considered acting on behalf of a partnership and taking part in its daily administration. If this occurs, the limited partner may share the liability with the general partners.

Limited Partnership Taxation

A partnership can opt to be taxed as a corporation. Otherwise, flow-through entity is the default tax status. This means that the business is not subject to corporate taxes. Instead, each member reports his or her share of profits and losses on the personal income tax return. This is a simple tax structure, although you should review full IRS regulations before choosing this type of entity.

In Delaware, businesses are also charged a flat annual $300 franchise tax. In addition, partners who do not live in the state must account for their Delaware income using a special form, available online from the Delaware Department of Revenue.

You should register with the IRS for an employer ID number (EIN) for your business. This is used to file taxes and conduct other financial matters.

Frequently Asked Questions

  1. What is the cost to file a Delaware Limited Partnership?
    The filing fee for forming a Delaware Limited Partnership is $200. There is also an additional franchise tax and costs for obtaining necessary legal documents, such as a registered agent.
  2. What documents are required for Delaware LP formation?
    To form a Delaware LP, you must file the "Certificate of Limited Partnership" with the Delaware Division of Corporations and submit basic business information .
  3. Do I need a registered agent to form an LP in Delaware?
    Yes, Delaware requires that you designate a registered agent who must maintain a physical address within the state to accept official documents on behalf of the partnership 【7†source】
    w do I choose a name for my Delaware Limited Partnership?**
    The name must include "Limited Partnership" or abbreviations like "LP" or "L.P." and cannot imply a different business structure. You can check name availability and reserve it through the Delaware Division of Corporations.
  4. What taxes apply to Delaware LPs?
    Delaware Limited Partnerships are subject to a franchise tax, and each partner reports income on personal tax returns. Additionally, out-of-state partners must file a special form to account for Delaware-source income 

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