How to Form a Limited Partnership (LP) in Michigan

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 What Is a Partnership?

Knowing what a partnership is, in general, will help you better understand a limited partnership.

A partnership is an association of two or more persons to carry on a business for profit as co-owners. Partnerships are formed when partners share profits and have control over the business. The parties will then be considered partners.

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

What Is an LP?

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, some general partners are completely personally liable for everything that the company does, and limited partners 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).

A limited partnership must have at least one general partner to be considered properly formed. Managing the limited partnership and its day-to-day operations will be the responsibility of the general partner.

A limited partner has limited powers over the partnership and can only be held responsible for the extent of their investment. Therefore, they are primarily responsible for limited partnership investment duties.

What Are the Requirements for an LP?

LPs cannot have just one partner, unlike LLCs and sole proprietorships. There must be at least two partners, with at least one limited partner and one general partner. An agent for the LP must also handle the service of process. In the event that the LP is sued, this entity can serve documents on behalf of the LP and receive documents for the business.

You may also need to register with Michigan if you are a foreign limited partnership. Foreign limited partnerships were formed in another country or state, but now operate in Michigan. You cannot sue anyone in Michigan court if you are a foreign limited partnership and do not register with LARA.

What Paperwork Do I Need to Form an LP?

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.

A Certificate of Limited Partnership is required for domestic LPs. To complete 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 the service of process. A limited partner must also know whether they have the right to transfer their partnership to another partner, when and how they can end the partnership, under what circumstances the limited partner has the right to income from the business, and if the limited partnership can continue even if one or more general partners leave.

Foreign LPs have to fill out an Application for Registration to Transact Business in Michigan.

The questions are similar to those for the domestic LP, but there are some differences. In case the agent for the service of process cannot be located, the form requires the name and address of another contact. The form does not provide as much detail about how to end the LP or how the partners differ.

Filing the Certificate of Limited Partnership

It’s time to legally form your limited partnership at this point.

Two or more individuals must execute a Certificate of Limited Partnership. The document must include the following information:

  • Name of the limited partnership
  • The general character of its business
  • Address of the office
  • Name and address of the registered agent
  • Name and business or residence address of each partner
  • A statement of the agreed value of the other property or services contributed by each limited partner
  • Any other matters the partners deem important

What Benefits Does Michigan Give to an LP?

LPs in Michigan are not required to file annual reports or pay fees. Businesses in certain neighborhoods are also offered tax benefits, such as an exemption from property taxes.

What Disadvantages Does Michigan Give to an LP?

The downside of an LP in Michigan is that, unlike other states, Michigan law does not allow limited partners to be involved in business operations. Limited partners are simply financial investors in the LP. LPs will lose their limited liability rights if they become involved in business affairs beyond simply sharing profits and losses.

Consequently, it may be necessary to have an attorney review the partnership agreement to ensure all parties are aware of the consequences of a partner withdrawing or terminating.

Is it Possible to Withdraw From a Limited Partnership?

Unlike a general partnership, a partner in a limited partnership may withdraw from the business without subjecting it to an automatic dissolution. A limited partnership differs from a general partnership in this way.

Limited partners who withdraw from a limited partnership must notify the partnership and file the necessary paperwork (i.e., withdrawal documents) with the state. Additionally, the remaining partners will have to buy out the withdrawing partner.

When a partner withdraws from a general partnership, the partnership usually dissolves (terminates). In addition, a general partnership may dissolve when one or more of its partners dies or becomes incapacitated.

What If I Have a Dispute That Involves a Limited Partnership?

As discussed above, one of the primary differences between all three partnerships is the amount of liability each partner can assume. In this way, it will be possible to determine which partner should be held liable for the partnership’s losses.

Limited partners are generally only liable to the extent of their investment in the limited partnership. Limited partners may be held personally liable for injuries or losses they cause if they act outside the scope of their duties as limited partners.

A limited partner could be held personally liable for their actions if they represent themselves as a general partner and make management decisions or represent as much to a third party.

On the other hand, if the limited partner was acting within the scope of their duties, which are usually set forth by the terms of an entity’s partnership agreement, it is more likely that the overall limited partnership will be responsible for any injuries or losses that result.

Multiple partners of a partnership can be jointly liable, either to the partnership or for damages awarded to plaintiffs. An individual’s liability agreement, as well as the facts surrounding the case, will determine the outcome of the case.

Should I Hire a Business Lawyer?

Getting help from a Michigan corporate lawyer may be necessary when setting up an LP. If you speak with a business lawyer, you are less likely to make a mistake in your paperwork. An experienced business lawyer can help you create the proper documents, negotiate partnership agreements, and assess your rights and duties as a limited partner.

In addition, an attorney can help you navigate the legal process and provide representation if you need to file or defend a limited partnership lawsuit in court.

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