When it comes to structuring and starting a business in Chicago, a limited partnership can be a wise alternative to other business types like LLCs and S Corporations. Limited partnerships (LPs) have a few key advantages, such as the protection of personal assets from debt and legal liability. But even the most experienced entrepreneurs have questions on how to get started. This article will share some of the ins and outs on the process of understanding limited partnership definitions in Chicago.

To understand the limited partnership definition in the city of Chicago, one must first understand the various roles and classes that make up a typical partnership. Most partnerships in Chicago are formed using the limited partnership (LP) or general partnership (GP) business models. While the terms are somewhat interchangeable, there are important distinctions between the two.

The limited partnership (LP) involves allocating a certain percentage of ownership to a certain number of people. Typically, these owners are referred to as “limited partners," and they don’t actively manage the day-to-day operations of the company. Instead, they are simply responsible for the capital that their contribution entitles them to. On the flip side, the general partners (GPs) are responsible for the active management of the business and can either have an equal or lesser ownership position compared to the limited partners.

The limited partnership structure requires the creation of a limited partnership agreement. This document outlines the specific roles with regard to ownership and management, the expected return and anticipated risks, as well as the rules and regulations. This agreement also stipulates the adequate insurance coverage and decides potential dispute resolution cascades should uncertainty arise.

In Chicago, for an LP to get off the ground, a few preliminary steps need to be taken first. First, the partners must decide on a business name and type. The name of the LP must include the phrase “limited partnership," and the following sequence of names must be used in the company title to differentiate it from other business entities (with a few exceptions available): “limited,” “LP,” or “L.P.”

After the initial setup, the formal documentation can begin. A “statement of qualification” should be completed and filed with the Illinois Secretary of State, to make the LP legitimate. This document will essentially define the concept of the overall limited partnership agreement, and its basic purpose - the general partnerships and any division of profits that may exist between the two types of partners.

Once these steps are taken, lawyers in Chicago need to be involved. Experienced legal counsel should be used to draft the limited partnership agreement, ensuring that all of the necessary clauses are in place, and accordingly drawing up the formal documents.

Partners in an LP need to be aware of the intricate liabilities that come with this structure and make sure they allocate the proper insurance coverage (including liability, property, and casualty) according to their particular partnership.

Under the limited partnership structure, it is necessary that the partners review and evaluate all of the partners’ business decisions. This means that they should discuss any decisions with their partner, no matter how small, and always ascertain that all the partners are kept updated.

To get started on limited partnership definition in the City of Chicago, entrepreneurs should seek the guidance of skilled legal professionals who understand the ins and outs of local regulations. At UpCounsel, experienced attorneys provide high quality and cost-effective business legal services. UpCounsel’s network of business attorneys have an average of 14 years of experience and display client ratings and reviews on their profiles.

At the end of the day, limited partnerships can provide entrepreneurs with the tools to create a more successful business and protect their personal assets from legal liability and debt. With the right advice and knowledge, understanding limited partnership definition in Chicago is the first step to launching a secure and successful business venture.


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