Limited Partnership Formation Documents
Limited partnership formation documents can include a partnership agreement and state certificates. Without these documents, the partnership will not be valid.3 min read
2. Starting a Limited Partnership
Limited partnership formation documents can include a partnership agreement and state certificates. Without these documents, the partnership will not be valid.
Documents Needed for a Limited Partnership
Forming a limited partnership (LP) is a method of structuring a business. For an LP to be valid and to operate legally, it must be registered in the state where the business is located. To register a limited partnership, a variety of documents are required, including state registration forms. Depending on the nature of the business, additional documents may be required.
Basically, general partnerships and limited partnerships function in the same way. The only difference is that limited partnerships need at least one limited partner and one general partner.
A general partner holds complete liability for the actions of the business, including debts and lawsuits. Limited partners, on the other hand, can only be held liable for the money that they've put into the business. Additionally, limited partners are not as involved in operating the business as a general partner would be.
One of the most important limited formation documents is a partnership agreement. This document is used to outline very important factors related to the partnership:
- The activities in which the business will engage.
- The business's address and name.
- The status of the partners.
A partnership agreement should also disclose how much each partner has contributed to the business and will outline how losses and profits will be distributed.
State certificates are also required to form a limited partnership. You will need to fill out a Certificate of Limited Partnership and submit it to your Secretary of State's office. Every state will have a different format for this certificate, but the basic information that is required will be the same:
- The business's physical address.
- The name of the business.
- Contact information for the business's registered agent.
You will also need to pay a fee when filing your Certificate of Limited Partnership. Depending on where your business is located and the nature of your operations, you may also need to obtain various registrations and permits. The state where your limited partnership is formed will dictate which registrations you will need to complete.
If your business has employees, for example, you will be required to register your business with the Department of Revenue. This registration is needed for the purposes of withholding state payroll taxes and reporting those taxes. Some business will need to obtain a liquor license, sales tax license or other license specific to their industry.
Businesses that wish to pay their employees, establish a business bank account, or file their federal tax returns will need an Employer Identification Number (EIN). These numbers can be requested from the IRS.
Starting a Limited Partnership
You can receive several advantages by forming a limited partnership instead of a general partnership. General partnerships are businesses whose goal is making a profit. These partnerships need at least two partners, and these partners will be equally responsible for managing the business.
In a limited partnership, there will be both limited and general partners. Limited partners are sometimes called silent partners since these partners are not at all responsible for managing the business. Limited partners, unlike general partners, do not have a right to property. The benefit of being a limited partner is that your liability will be very restricted. Only the amount that you've invested will be at risk.
Another benefit of being a limited partner is that you will be able to avoid double taxation, as limited partners do not have to pay corporate-level taxes. Instead, profits that are distributed to limited partners will be reported on their individual returns. Because limited partnerships provide limited liability protections and tax benefits, it can be easy to attract investors to these businesses. The process of forming a limited partnership is fairly standard, despite the fact that these business entities are governed at the state level.
One of the most important steps in forming a limited partnership is picking a name for your business. For instance, if you want to use something other than the name of your partners, you would need to submit a Doing Business As (DBA) registration with your state. This is also known as a fictitious name registration.
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