Do you intend forming a Limited Partnership business in the United States of America and have no idea on what to do? You have come to the right place. In this article, we will be sharing a step-by-step guide on forming a limited partnership company in the United States of America. However, before we get started, let us take a quick look at what is a limited partnership?
Table of Content
- What is a Limited Partnership
- Step 2: Appoint A Registered Agent
- Step 3: Registering with the Secretary of State
- Step 4: Prepare and File the Articles of Association Form
- Step 5: Create an Operating Agreement
- Step 6: Acquire an Employer Identification Number
- Step 8: Sort – Out Taxes
- Step 9: Open Your LP Bank Account
- Step 10: Apply and Obtain Your Business Phone Number
What is a Limited Partnership
A Limited Partnership (LP) is a form of business partnership that is similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited partner. Limited partnerships are distinct from limited liability partnerships, in which all partners have limited liability.
Please note that when limited partnership is being established, or when the composition of the firm is changing, limited partnerships are required to file documents with the relevant state registration office. Limited partners must disclose their status when dealing with other parties, so that such parties are on notice that the individual negotiating with them carries limited liability.
It is customary that the documentation and electronic materials issued to the public by the firm will carry a clear statement identifying the legal nature of the firm and listing the partners separately as general and limited. Unlike the GPs, the limited partners do not have inherent agency authority to bind the firm unless they are subsequently held out as agents (and so create an agency by estoppel); or acts of ratification by the firm create ostensible authority.
The bottom line is that forming a limited partnership business in the United States is simple and straightforward. However, it comes with a filling different from each state in the United States. Read on to discover the things you need to do.
How to Form a Limited Partnership in 10 Steps
It is up to you to come up with a name for your limited partnership business, your name ought to be unique. US law explicitly states that your limited partnership’s name should not be “misleadingly similar” to the names of other businesses on record with the Department of Assessments and Taxation.
To give you a better understanding, here are some of the naming guidelines:
- Your company should not include words or phrases that might make the public confuse your company with a government agency such as F.B.I., State Department, NASA, Treasury. Examples of such restricted words include Bank, University, and Attorney.
- If you want to make use of restricted words like Attorney, Bank and the rest, you will need more paperwork as well as a licensed individual such as a lawyer or doctor to be members of your Limited Partnership
- You can check if the name you intend to use is available by carrying a search business
So also, you must make sure that the name you want to use is not already taken. You can be check if the name is unique by searching the name on the State Website. Also, make sure your business can use its name as a web domain. Even though creating a business website is not on your plan, it is best you purchase the URL to stop others from using it.
After you have registered a domain name, consider creating a professional email account. A professional email that makes use of your domain name is vital to establishing trust between your business and its customers. In this modern era, where scam is on a high, companies need to make use of a professional email address to provide a sense of professionalism and credibility.
Step 2: Appoint A Registered Agent
Next, you are required to choose a registered agent for your limited partnership in the United States of America. A Resident Agent is the person or company who receives your limited partnership’s documents, notices and legal mail (called Service of Process). Because of this, the Resident Agent must have an actual street address in Missouri (PO boxes are not allowed by the state). Picture your registered agent as your company representative to the state.
It is important to note that not everyone can be a registered agent. For a person to be eligible to become a registered agent, the person or corporation must be a resident of the state you intend forming the limited partnership. That is to say, the individual or corporation must have a physical address within the state.
If any member knows the ropes of being a registered agent, you may elect him or her rather than hiring one. This will help you save some dollars, especially if you are running a small business. However, hiring a seasoned registered agent offers tons of benefits like privacy and peace of mind. Please note that you, your friend or family members or a commercial resident agent are qualified to be your limited partnership’s Resident Agent.
Step 3: Registering with the Secretary of State
In the United States, limited partnerships are mandated to register with their local Secretary of State before they can begin trading. In some states, this registration procedure is not formally required, but limited partnerships will probably still be required to obtain the necessary business licenses and fictitious name certificates. The vast majority of businesses will have to connect with their Secretary of State on some issue or another when setting up their limited partnership.
For example, registering your limited partnership with the Secretary of State in the state of California is a straightforward process, although not obligatory. Should you choose to register, simply fill out a Statement of Partnership Authority form. This form has a filing fee of $70.
In the state of Vermont on the other hand, limited partnerships are required to register with the Secretary of State and must renew that registration every five years. Registration can be done online here or through the mail using this form. The filing fee is $125.00. Regardless of what state your business is in, the necessary forms will ask for the following information:
- Name and address of each partner
- Company name and registered office address
- Contact information for the business’s registered agent
Please note that when you have received the relevant certifications and confirmation of fee payments, your limited partnership is legally open and ready for business.
Remember: from now on, every document of business correspondence you produce must contain your company name, the legal form “Limited partnership,” and the location of the registered office. You are also responsible for notifying any changes like the withdrawal of partners or a new official office address immediately with the Secretary of State.
Step 4: Prepare and File the Articles of Association Form
For successful registration of your limited partnership., you will be required to file articles of organization. Every limited partnership needs a statute in the form of binding articles of association. In contrast to many other legal documents, the structure and format of the articles of association is not subject to any legal regulations.
However, it should at least be set down in writing (whether a verbal contract is legally binding is disputable). In order to prevent disputes within the company, it is advisable to specify a number of points. These include:
- Company name (freely selectable as far as possible, with the addition of limited partnership at the end)
- A registered office
- Business purpose (should be compatible with the characteristics of a commercial enterprise)
- Names and addresses of the partners
- Deposits (amount and terms of payment are freely selectable)
- Type of management (individual or overall management)
- Distribution of profits and losses among partners
- Resolutions on the termination and continuation of the company in the event of a partner quitting or dying (e.g. to prevent succession problems if the capital share of a deceased partner is transferred to the other participants)
Please note that a limited partnership will require notarization if real estate (land, buildings) is brought as initial capital into the partnership as a contribution in kind by one of the partners. However, you should not shy away from consulting a legal advisor in the event of ambiguities, who will advise you when drawing up the articles of association.
As soon as the contract has been signed, your limited partnership will initially be regarded as a partnership under civil law. Outwardly, the company becomes effective as a limited partnership as soon as it begins trading, and has been registered with the local Secretary of State.
Step 5: Create an Operating Agreement
An Operating Agreement lists the rights and obligations of the members of the limited partnership. These include rules on how the limited partnership should be run, how taxes are to be paid, and how profits/losses are to be shared among the members.
The Operating Agreement also contains the list of members of your limited partnership and how much their stake is in the business. The Operating Agreement is the primary document that establishes the rights, powers, duties, liabilities, and obligations of the members among themselves and to the limited partnership. The Operating Agreement is purely an internal document and is not filed with the Secretary of State.
If an existing or newly created limited partnership does not adopt an operating agreement, its existing articles of organization, bylaws or operating agreement, and/or its member control or agreement will collectively become its operating agreement.
The bottom line is that, in case your limited partnership is sued, having an Operating Agreement shows that your limited partnership is operating properly. This helps maintain your personal liability protection.
Step 6: Acquire an Employer Identification Number
An EIN is sometimes referred to as a Federal Employer Identification Number (FEIN) or Federal Tax Identification Number (FTIN) is a 9 – digit number similar to a social security number. The Employer identification number will be used to identify your business. It is like a social security number for your company.
An Employer Identification number is essential because you will need it to open a business account for your company, to hire employees as well as tax purposes. You can obtain your E.I.N. from the I.R.S. after creating your company. You can do it via mail or online. Note: It won’t cost you a dime to get an E.I.N. from the I.R.S.
You can obtain an EIN from the IRS either
- Via mail (approval takes 4 weeks)
- Via fax (approval takes 4 business days)
- Via online application (approval is instant at the end of the application)
Please note that partnerships must file Form SS-4 with the Internal Revenue Service. Form SS-4 is used to get an employer identification number, also known as a federal tax ID number, from the IRS. The IRS allows a partnership to file Form SS-4 online using the IRS website, by telephone, by fax or by mail.
The partnership must state the name and address of the business, the nature of the company’s activities and the number of people employed by the company. An authorized partner must include his name, address and Social Security number on Form SS-4.
The IRS will immediately assign an EIN to a partnership that applies online or by telephone. Partnerships that apply by mail may wait as long as four weeks while it may take up to four business days to receive an EIN by fax.
Step 7: Securing Business Licenses and/or Permits
The next step you are expected to take is to secure your business license and permits as the case may be. The type of business licenses and/or permits your limited partnership will need to legally operate in Missouri will depend on its location and the industry it is involved in.
Please note that in order to operate your limited partnership you must comply with federal, state, and local government regulations. For example, restaurants likely need health permits, building permits, signage permits, etc. The details of business licenses and permits vary from state to state. Make sure you read carefully. Don’t be surprised if there are short classes required as well.
Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain. Please note that registering for state trade licenses is compulsory and depending on what kind of business you are operating, you may be required to register for a trade license.
Different states have different business registration and licensing agreements. You can find out more information about what kind of requirements your state has by visiting the Small Business Association’s website. To find out more, contact your local agencies in the city, town or county where your limited partnership is located.
Step 8: Sort – Out Taxes
Depending on the nature of your business, you may be required to register for one or more forms of state tax.
Sales Tax: If you are selling a physical product, you will typically need to register for a sellers permit through the state Combined Registration Online Application website. This certificate allows a business to collect sales tax on taxable sales.
Sales tax, also called “Sales and Use Tax,” is a tax levied by states, counties, and municipalities on business transactions involving the exchange of certain taxable goods or services.
Employer Taxes: If you have employees, you will have to register for the Unemployment Insurance Tax, and the Employee Withholding Tax through the Missouri Department of Labor, Licensing, and Regulation.
Step 9: Open Your LP Bank Account
In order to keep your business finances apart from your personal finances, it is advisable that you open a separate bank account for your limited partnership. It will indeed help you maintain your personal liability protection. A separate bank account helps maintain your liability protection and it also makes business accounting and taxes a lot easier.
The items needed to open an account in the US are your approved Articles of Organization, EIN Confirmation Letter from the IRS, and your driver’s license or passport. We also recommend calling the bank ahead of time to find out if additional documents are required.
Tips: Look for free business checking: Call a few banks in the state you intend opening your limited partnership and take down notes for comparison. Some banks charge monthly maintenance fees for your limited partnership’s checking accounts, others don’t.
Debit card: A debit card for your limited partnership business will be issued when opening the account.
Credit card: If you want to start building business credit for your limited partnership (or get travel and cashback rewards), you can get a credit card or two for your limited partnership. We recommend using creditcards.com to find a business credit card.
Step 10: Apply and Obtain Your Business Phone Number
Instead of using your home telephone number or your cell phone, you can purchase an affordable “virtual business number” specifically for your limited partnership business. You can set this virtual business phone up to forward to your cell phone, go through voice prompts, or configure it any way you’d like.
You can check out Phone.com as they have the cheapest plans and their customer service is excellent. They offer local phone numbers as well as 1-800 toll-free numbers. You can easily setup call forwarding, pre-recorded prompts, and get voicemail messages forwarded to your email. Getting a separate business phone number for your limited partnership is also a good idea in order to keep your actual number private from those pesky “public record” websites.
In the United States, the limited partnership organization is common among film production companies and real estate investment projects, or in types of businesses that focus on a single or limited-term project. They are also useful in “labor-capital” partnerships, where one or more financial backers prefer to contribute money or resources while the other partner performs the actual work.
In such situations, liability is the driving concern behind the choice of limited partnership status. Please, note that the information in this article is provided only for general purpose and it is no way a legal advice. No lawyer – client relationship is established or should any such relationship be assumed. For legal advice, please consult a professional lawyer.