When it comes to Limited Partnerships (“LP”), there are two mandatory classes of partners involved: limited and general partners. The liability of limited partners in LP’s does not go beyond their investment. Whereas general partners essentially run the business and are held accountable for the actions of the LP and retain full liability for all of the debts of the business. Both partners account for revenue from the LP on their personal returns. The benefit of having a Limited Partnership is not being required to pay any state taxes on the LP’s profits. In some states, there are no personal income taxes so it is even more beneficial to create an LP in those locations. That is because the profits of the LP are taxed through each partner’s personal income tax, and Wyoming and Las Vegas do not have personal income tax. The following blog will discuss the steps to form a limited partnership.
The first thing that needs to be done is to choose a business name reflective of your business to attract the kind of clientele you are looking for. It is possible that you might need to include the entity type in the business name (LP) in order for it to be valid. To avoid conflicts with other businesses, you must check to ensure the name you have chosen has not already been registered. It is also important to protect the new business name by registering it with the appropriate governing body. Failure to register your business before running it could lead to a fine of $5,000.00.
Limited Partnerships must file a Certificate of Limited Partnership to operate. Additionally, it will require the list of the amounts of money invested or contributed. Registration with the state government would also require a filing fee. Unless your business does not involve employees, you will need an Employer Identification Number (“EIN”) from the IRS. An EIN would prove helpful for opening a business bank accounts, credit cards and more even if you don’t plan to have employees.
Annual reports of the LP are due every year on the first day of the anniversary month of formation. Failure to comply with the annual reports within 60 days of the due date, the LP will be subject to dissolution.
It is crucial to find out if your business requires special type of licensing depending on the nature of the business as the case would be for contractors. Following that step, it is important to check with the Secretary of State for details regarding additional taxes.
In order to protect your limited liability, you must open a bank account in your business’s name. You will also need a physical address for the business to receive mail and legal notices. A registered agent will prove useful to be served of any lawsuits towards the business.
Finally, there should also be a partnership agreement to describe such items as the goals of the organization, the obligations of its partners, bringing on new partners, and the closing of or the change of the business.
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