Starting Limited Partnerships

A limited partnership is a partnership with two classes of partners: general partners and limited partners. The general partners operate the business and are personally liable for all obligations of the partnership. The limited partners do not have any control over the business, other than to determine who will manage the business. Limited partners share in the profits of the partnership but their losses are limited to the amount of their contributions to the partnership.

Formation. A limited partnership is a creature of statute. As such, a limited partnership does not exist until the requirements specified in the state law are met. Generally, a certificate of limited partnership is required to be signed and filed with the secretary of state's office, and in some instances a limited partnership agreement is also required to be filed. If the requirements are not met, the business will be treated as a general partnership or an association taxable as a corporation.

A certificate of limited partnership contains information about the limited partnership such as its name, address, purpose, who the general partners are, and their business address, etc. The requirements of each state vary.

A limited partnership agreement contains the same basic information that a general partnership agreement does, but addresses some additional provisions pertaining to limited partners. A limited partnership agreement should address:

Additional topics to be included in a partnership agreement if applicable:

 
Warning

A limited partnership is generally not regarded as the best choice of entity for a new business because of the required filings and administrative complexities. For a new business with two or more working partners, a general partnership would be much easier to form. If a limited partnership is needed at a later date, the general partnership can easily convert to a limited partnership.

There are some situations in which the limited partnership form for a new business may be desirable. One such instance is a business in which the owner needs to raise capital yet still control the way the business is operated. If that applies to you, you might consider forming a limited partnership and selling limited partnership interests to investors.