Frequently Asked Questions
Q. What is a limited partnership (LP)?
A. A limited partnership is similar to a general partnership, with the primary difference of offering limited liability protection to some of the partners. In a limited partnership, at least one partner must be a general partner with unlimited liability, and at least one partner must be a limited partner whose liability is typically limited to the amount of his or her investment. Limited partners act as “silent partners” making a capital investment much like passive shareholders in a publicly-traded corporation but having no involvement in the management decisions of the business.
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Q. When is the limited partnership (LP) entity-type most commonly used?
A. The limited partnership structure is especially appealing to types of businesses where a single, limited-term project is the focus, such as real estate or the film industry. Limited partnerships can also be used as a form of estate planning in that parents can retain control of their business while transferring interest to their children.
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Q. How are limited partnerships (LPs) taxed?
A. Limited partnerships allow for pass-through taxation, as its income is not taxed at the entity level; however, a tax return for the partnership must be completed. Any income or loss of the limited partnership as shown on the return is passed-through to the partners’ individual tax returns. The partners, must then report the income or loss on their individual tax returns and pay any necessary tax.
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Q. How many owners are required to form a limited partnership (LP)?
A. A limited partnership must have two or more owners. At least one owner must be a general partner who has unlimited, personal liability, and at least one owner must be a limited partner who has limited liability but is prohibited from participating in the management of the business.
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Q. Do I need an attorney to form a limited partnership (LP)?
A. No, an attorney is not a legal requirement. You can prepare and file the certificate of partnership yourself; however, you should understand the requirements of your intended state of formation.
You can use BizFilings' service to form your limited partnership and save money on attorney's fees. However, if you are unsure of what entity type would be most beneficial to your business, consult an attorney or accountant.
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Q. What should I name my limited partnership (LP)?
A. Choose the name of your limited partnership carefully. It is very important that your name portray the image you want for your partnership. Legally, the name you select must not be "deceptively similar" to any existing company or must be "distinguishable on the record" of your state.
Because some states only check proposed limited partnership names against existing limited partnerships, reserved and active, it is highly recommended that you perform a trademark search to make sure the name you want to use is not already taken by another entity type.
Additionally, most states require that the name you select show your business is a limited partnership, by including the words "Limited Partnership" or the abbreviation of "LP " .
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Q. How do I get started setting up a limited partnership (LP)?
A. After you decide to form a limited partnership, a certificate of partnership must be filed with the state and initial fees must be paid. If you choose BizFilings to form your limited partnership, we will complete these administrative tasks quickly and effectively.
After your certificate of partnership is filed, your limited partnership should have an organizational meeting where an operating/partnership agreement is adopted, partnership certificates are distributed and other preliminary matters are completed.
BizFilings' Limited Partnership Kit includes all the information and paperwork to make this process easier.
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