How to Form a Limited Partnership (LP) in Hawaii

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 What Is A Limited Partnership?

In order to better understand what a limited partnership is, it is helpful to discuss what a partnership is in general. In a business management structure context, a partnership is the association of two or more people to carry on as co-owners of a business for profit. As such, the partnership is formed when the parties to a business have the ability to share in the profits, and when they have a right to control the business.

There are three different types of partnerships: general partnerships, limited liability partnerships (“LLPs”), and limited partnerships (“LPs”). The specific type of partnership formed will largely determine the amount of liability that an individual partner may face as part of the partnership.

A limited partnership is a specific type of business partnership that enables its limited partners to receive legal rights, which act as protection against individual liability claims for various reasons. Some of the reasons would include debt, losses, or violations that are directly related to the overall limited partnership.

Alternatively, in a general partnership, each partner is both individually and jointly responsible for the losses incurred by the partnership. This can put partners at a disadvantage if they play a considerably minor role in the partnership, or if they have contributed fewer funds to the business compared to the other general partners.

While it is referred to as a limited partnership, each limited partnership requires at least one general partner in order to be considered properly formed. This general partner will be responsible for making management decisions for the limited partnership, as well as its day-to-day operations.

A limited partner only has limited powers over the partnership, and, as such, can only be held responsible to the extent of their investment in the limited partnership. This is why they are commonly responsible for investment duties that are associated with the limited partnership.

Unlike a general partnership, a partner to a limited partnership may withdraw from the business without subjecting it to an automatic dissolution. When a limited partner decides to withdraw from a limited partnership, the partner will be required to notify the partnership and to file the necessary paperwork with the state. Additionally, the remaining partners in the limited partnership will need to buy out the partner who is withdrawing.

Alternatively, when a partner withdraws from a general partnership, doing so will generally result in the dissolution or termination of that partnership. Additionally, a general partnership can dissolve when any of its partners become either deceased or incapacitated.

How Do I Form A Limited Partnership (“LP”) In Hawaii?

Each state has its own criteria for forming a limited partnership in that state. In Hawaii, limited partnerships are governed by the Uniform Limited Partnership Act, which dictates the creation and management of LPs. The Department of Commerce and Consumer Affairs is responsible for the registration of limited partnerships.

In Hawaii, a limited partnership must have at least one general partner and one limited partner. Additionally, if your partnership operates under an assumed name which would be something other than the partners’ surnames, you must register the business’ name with the state. You will also need to designate your business’ limited partnership status by putting “L.P.” after its name.

You will need to designate a registered agent for your LP, who is someone authorized to accept important documents for your business. An example of this would be service processing. As such, the registered agent must be physically present in the state of Hawaii.

In order to create a limited partnership, you must file a Certificate of Limited Partnership (Form LP-1) with the Department of Commerce and Consumer Affairs. This form can be submitted either online or by mail and will require:

  • The name of your partnership
  • The business’ physical address;
  • The name and address of your registered agent; and
  • The names and addresses of all of the LP’s general partners.

It is important to note that you may have to file additional paperwork if you plan on operating your business under an assumed name, as was previously mentioned.

In addition to your state filing, you should consider drafting a partnership agreement. This document defines the rights and responsibilities of both general and limited partners. An example of this would be how a partnership agreement may clarify procedures for profit distribution, dispute resolution, and terminating the partnership.

What Are The Advantages And Disadvantages Of Forming A Limited Partnership In Hawaii?

There are specific benefits associated with forming a limited partnership. First, an LP does not file taxes; rather, its income passes through to its partners, who must then report this income to the IRS and pay taxes. If you are a limited partner, you may not be personally liable for the business’ debts and other financial obligations. As such, as long as a limited partner does not take an active role in the partnership’s management, your personal assets cannot be collected in order to satisfy the LP’s debts.

However, general partners are personally liable for the business’s debts and other obligations, such as legal judgments. What this means is that a general partner’s personal assets can be seized to collect a debt or judgment against the LP. Because of this, if you form a limited partnership, general partners should consider purchasing liability insurance to help offset this risk.

Alternatively, you could consider creating a limited liability partnership (“LLP”). In an LLP, all partners have limited liability protections. However, there are different rules and procedures that apply to LLPs in Hawaii.

What Should I Do If I Have A Problem With An LP?

One of the defining factors that separates all three partnership models is the amount of liability that can be attributed to each partner. This will help determine which of the partners should be held responsible for the financial losses of the partnership.

Generally speaking, limited partners are only liable to the extent of the investment that they made to the limited partnership. However, if a partner was acting outside of the scope of their duties as a limited partner, it is likely that they will be held personally liable for any injuries or losses that they caused.

An example of this would be if a limited partner attempts to hold themselves out as if they are a general partner, and begins making management decisions or represents as much to a third party. They could be held personally liable for any consequences of their actions.

Alternatively, if the limited partner was acting within the scope of their duties which are generally outlined by the terms of the partnership agreement, it is more likely that the overall limited partnership will be responsible for any injuries or losses that result.

There are some cases in which multiple partners to the partnership may be jointly liable, either to the partnership or held responsible for paying damages that are awarded to a plaintiff. This will largely depend on the individual facts associated with the case, as well as the liability agreement that was created between and entered into by a partner and their partnership organization.

Do I Need A Lawyer To Form An LP In Hawaii?

If you would like to form an LP in Hawaii, you should consult with a Hawaiian corporate lawyer. They help you follow the correct procedures and protect your limited partnership, and will also be able to represent you in court, as needed, should any legal issues arise.

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