A limited partnership (LP) is a business structure that offers limited liability to some owners, known as partners, that is not available in other business structures such as sole proprietorships. With an LP, there are general partners who are completely personally liable for everything that the company does and limited partners who are only liable for the amount of money they put in. In Michigan, a business can only be an LP by registering as an LP with the Michigan Department of Licensing and Regulatory Affairs (LARA).
Unlike LLCs and sole proprietorships, an LP cannot just have only one partner. Rather, there must be at least two partners, with at least one limited partner and one general partner. The LP must also have an agent for service of process. This entity is either a person or a company that can receive documents for the business and be served on the LP’s behalf in the event that the LP is sued.
Also, if you are a foreign LP, you may need to register with Michigan as well. Foreign LPs are ones created in another state or country, but are now doing business in Michigan. If you are a foreign LP and do not register with LARA while still conducting business in the state, then your LP cannot sue anyone in Michigan court.
There are separate forms for domestic LPs and foreign LPs, but all of the forms you need can be found and filed online or sent in via fax, email, in-person delivery, or regular mail. Domestic LPs are required to fill out a Certificate of Limited Partnership. To fill out the form, you will need to provide the name, address, and purpose of the business, as well as the name and address of the agent for service of process. You also have to state whether the limited partner has the right to give their limited partnership to someone else, when and how any of the partners can end the partnership, under what circumstances the limited partner has a right to income from the business, and if the LP can continue in the event of one or more general partners leaving the LP.
Foreign LPs have to fill out an Application for Registration to Transact Business in Michigan. The questions are similar to the ones for the domestic LP, but there are a few differences. One main difference is the form needs the name and address of another contact in case the agent for service of process cannot be found. This form also does not go into as much detail about how to end the LP or differences between the partners.
Michigan does not require annual reports or fees for LPs. The state also offers tax benefits to businesses, such as an exemption to paying property taxes for certain businesses in specific neighborhoods.
One of the downsides to an LP in Michigan is that, unlike other states, Michigan law does not allow limited partners to be involved in the actual running of the business. This means that limited partners are simply financial investors in the LP. If a limited partner becomes at all involved in the affairs of the business beyond merely sharing in the LP’s profits and losses, then they will give up their right to limited liability.
It may be necessary to get help from a Michigan business lawyer when you are setting up an LP. Speaking with a business lawyer lowers your chance of making a mistake in your paperwork.