A limited partnership – known as an “LP” – is a business entity choice that allows certain participants in a business to reduce their personal exposure to the debts of the business. An LP allows people to participate in a business, usually through the investment of cash or assets, without becoming personally liable for the debts of the business.
The LP is an important business structure and is generally used by small businesses that need a partner to infuse cash or assets into the business. For example, an LP might be used by an investor who is willing to invest money into the business but who does not want to be responsible for the direct management of the business and who does not want to personally liable for the debts of the business.
There are only a few requirements for becoming an LP with New Mexico. The LP must file a notice with the state that provides notice that the LP is being formed. There must be a registered agent associated with the LP, along with a registered agent’s address.
The registered agent information is required for two basic reasons. First, the registered agent is how the state can interact with LP. For example, if the LP fails to file ongoing annual notices with the state, then the state may attempt to contact the registered agent to determine if the LP is still conducting a business. Second, if the LP is being sued, then notice of such suit should be sent to the registered agent of record.
The New Mexico Secretary of State Business Services Division is responsible for the filing requirements of businesses in the state. There are many types of LPs in New Mexico (e.g., Foreign Limited Partnerships, General Partnerships, Limited Liability Limited Partnerships, etc.) and each entity type has specific filing requirements.
But to form a New Mexico Limited Partnership, a Certificate of Limited Partnership must be filed with the Secretary of State. It must contain:
- The name of the limited partnership;
- Address and name of the agent for the limited partnership;
- Name and business address of each general partner;
- End date of the limited partnership (if this is one); and
- Any other matters that the general partners wish to include.
LPs are taxed a personal (rather than corporate) level. This means that the LP avoids double taxation. The individual partners in the LP are responsible for the taxes that result from any income gained by the LP.
The major disadvantage of an LP is that the LP is susceptible to internal disputes and conflict. Limited partners in an LP generally have very little control over the day-to-day operations of the LP but can have significant assets at risk. A well thought out LP will have an operating agreement that addresses how internal conflict is to be managed.
If you need help forming your LP, then contact a local New Mexico business lawyer today to discuss the formation and operation of your LP.