A limited partnership is a specific type of business partnership that enables each partner to achieve legal protection against individual liability for the debts, losses, and violations related to the overall partnership. Limited partnership are different differs from other partnerships since it allows all partners to have limited liability. This limited liability depends on the individual partner’s investment contribution to the business. In addition, one or two partners known as general partners run a limited partnership venture.
In Alabama, the requirements to form an LP are the following:
- File a Domestic Limited Partnership Certificate: An LP must file a Domestic Limited Partnership Certificate with the probate judge in the county they want to do business, along with the current filing fee in order to become a recognized legal entity.
- Check the Name of Your Limited Partnership: You must also name the LP and be sure to check that the name of the LP is not used and unique from other business entities of trademarks on Alabama. The name also must include “limited” or “LP”
- No Written Agreement Required: You do not need any written agreements other than the Certificate of Limited Partnership to form a limited partnership.
- Partner Requirement: Alabama law does not limit the number but does require that limited partnerships have at least one general partner and at least one limited partner.
To form a Alabama Limited Partnership, an Alabaman LP must file a Domestic Limited Partnership Certificate, along with a filing fee, with the probate judge in the county. The certificate must state the following:
- Name of the LP
- Address of office of LP
- Address of the agents of LP
- Name and Address of each partner of the LP
There are several benefits of having a limited partnership in Alabama. These benefits are:
- Limited Liability: Limited partners who form an LP and contribute money only face limited liability. This means that if the business goes bankrupt, the limited partners would only be liable up to the amount of money they invested or contributed to the business and nothing more.
- Tax Benefits: The profits and losses in an LP flow through the business to the partners, all who are taxed on their personal income tax returns and get to share the profits and losses.
- Less paperwork: An LP has less paperwork than formation of a corporation.
- No Annual Meetings: Alabama law does not require limited partnership to have annual meetings, file reports with the Alabama Corporation Commission, Alabama Secretary of State or other state agency or that the partnership pay any annual fees.
Limited partnerships in Alabama do have some disadvantages. Some of these are that Limited partnerships have less of a say in the business than the general partners. If they begin to become active in the LP, the general partners see this as a risk. In addition, unlike the general partners in the business, limited partners income are not considered for tax purposes so they usually have to pay self-employment tax.
The law surrounding the requirements and protection of limited partnerships are complicated. The facts of each case and limited partnership can be unique. Limited Partnership laws can vary from state to state. It’s in your best interests to hire a local Alabama Business lawyer if you need help with the limited partnership laws in your area. Your attorney will be able to assist you with tasks such as filing, creating documents, and negotiating partnership agreements.