Understanding Limited Partnership Definition in New York
Running a business isn't always easy4 min read
Running a business isn't always easy. To help make matters simpler, some entrepreneurs utilize a form of ownership known as a limited partnership, or LP. To understand this type of business structure, we'll discuss the limited partnership definition, its benefits and drawbacks, and how to register for this business model in the state of New York.
A limited partnership is a business structure that combines the key attributes of many other popular business models, such as corporations, general partnerships, and LLCs. It allows a business to benefit from the partnership's pass-through taxation and limited liability of a corporation or LLC.
Indeed, limited partnerships are an attractive business structure for New York entrepreneurs, but as with any business structure, it’s important to know the rules and regulations. It’s also important to know how to register your LP in New York. In this guide, we’ll explain all of it.
What is a Limited Partnership?
As governed by the Uniform Limited Partnership Act (ULPA) of 1917, a limited partnership is a business structure where at least one of the partners (known as the general partner) holds unlimited liability for business actions, while the other partners (known as the limited partners) enjoy limited liability. It's a hybrid of the corporation and partnership models.
The limited partners also benefit from pass-through tax status, which relieves much of the burden of filing taxes. The downside is the limited partners are barred from taking part in the day-to-day operations of the business. As such, the limited partner mainly provides capital and acts as a consultant.
The Benefits of Limited Partnerships
The limited partnership is an excellent business structure for many entrepreneurs in New York due to the numerous benefits it offers. These include:
Limited liability protection for limited partners
Pass-through tax status
Ease of recruiting and allocating capital investments
The ability to limit partners' financial obligations and ownership roles
More flexible regulations than other types of business structures
One of the most appealing features of a limited partnership is the much more limited liability the limited partners enjoy in comparison to the general partner. With most types of business structures, all the partners bear unlimited financial responsibility for any sort of malfeasance on behalf of the business. However, with a limited partnership, the limited partners are only liable for what they personally invest into the business.
The Disadvantages of Limited Partnerships
Despite the many advantages of a limited partnership structure, there are some drawbacks to consider:
Greater burden of filing taxes
Some risks due to limited partner's lack of control
Defined roles among the partners can be limiting
The general partner is subject to full personal liability
Costs and complexity of setting up the structure can be relatively high
When it comes to taxes, the limited partnership's pass-through status means the business is not liable for corporate income taxes on the liquidity passing through, but the income is then attributed to the individual partners of the business. This means the business must file a partnership return (form 1065) each year with the Internal Revenue Service (IRS) and also file separate individual returns for each partner. This can create a more complicated filing situation compared to other business models.
Limited Partnership Definition in New York
Under the laws of New York, a limited partnership is governed by Sections 104 and 105 of the Partnership Law of the State of New York. Additionally, Section 50-A of the New York Limited Partnership Act of 1945 dictates that an LP must operate with one or more general partners, who bear unlimited personal liability for the operations of the partnership, and at least one limited partner, who are liable only up to the amount of their contribution and have limited control over the partnership's fiscal activities.
How to Register a Limited Partnership in New York
To form a limited partnership in New York, the first step is to appoint a general partner and at least one limited partner. You can do this by signing a partnership agreement that outlines the obligations of each partner as well as the general objectives of the partnership. Once you've agreed on the terms of the partnership, you must file a Certificate of Limited Partnership with the New York Department of State.
Once your Certificate of Limited Partnership is filed, your limited partnership will be legally recognized in New York, and you'll be able to open a business bank account, register for a business license, and legally conduct business activities. Before you register, however, you'll want to check with the New York Department of Taxation to make sure you're in compliance with any relevant state and local tax regulations.
How UpCounsel Can Help
If you're considering forming a limited partnership in New York, you'll likely need help from experienced legal counsel. At UpCounsel, our network of experienced attorneys can provide you with the high-quality and cost effective legal services you need. With decades of combined experience in the corporate world, our lawyers are knowledgeable on the ins and outs of all business matters and can help you confidently move forward with your limited partnership.