A limited partnership, or LP, is a formal business structure that must be registered with the state in which the business operates. Several documents, including basic registration forms, are required to secure the interests of the partnership and formalize the business as a legal entity. Additional documents are dependent on the industry of the partnership and state requirements.
A limited partnership operates in the same manner as a general partnership, except that at least one partner is a general partner and at least one partner is a limited partner. General partners are personally at risk for 100 percent of any potential liability recognized or accrued by the business, while a limited partner is at risk only for liabilities equal to his personal investment in the business. Limited partners do not participate in the operational activities of the business to the extent that general partners do.
Read More: How to Convert a General to a Limited Partnership
A partnership agreement outlines the general structure of business activities and the name and address of the business, and it assigns general or limited partner status to each partner. The partnership agreement lists the capital contribution of each partner and addresses the terms of profit and loss distributions. The agreement is a legally binding document. You must prepare the agreement to protect the interests of all partners, but you may not be required to file the agreement with your state. Basic partnership agreement templates can be found online or in business start-up books. If your partnership agreement is complicated, consider contacting a local attorney to draft the agreement.
To form the limited partnership, you must complete a certificate of limited partnership and file it with your secretary of state. The certificate format varies between states but generally requires disclosure of the name and physical address of the business, the mailing address of a registered agent or person designated to receive state mailings on behalf of the business and the names of the general partners. Each state imposes a filing fee to record the certificate.
Miscellaneous Permits and Registrations
The certificate you file with the secretary of state legally forms your limited partnership, but you may need additional permits or registrations to operate depending on the nature of your business. Most additional registrations are required by the state in which you operate, and these requirements vary between states. If you have employees, you must register with the department of revenue to withhold and report state payroll taxes. You may be required to hold certain licenses, such as sales tax, liquor or industry-specific licenses. You also must obtain a federal Employer Identification Number (EIN) from the Internal Revenue Service to open bank accounts, pay employees and file tax returns. You can obtain an EIN from the IRS.gov website.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.