An LP or Limited Partnership is a way of structuring a business that provides limited liability to its members (partners) but also the structural and tax flexibility of a partnership. The limited liability aspect of the LP protects the assets of its limited partners from the debts, losses, and legal claims related to the limited partnership but not the assets of general partners. Also, like partnerships, LPs are free of many of the organizational requirements of a corporate and corporation taxes.
An LP can only be formed under state law. As a result, the requirements and protections for LPs can vary widely from state to state. While there is a lot of flexibility in creating and structuring LPs in North Dakota, there are a few mandatory requirements:
- Choose a Name for the LP. This name must be different from all other business names on record at the North Dakota State Corporation Secretary of State and must include either “limited partnership,” “Ltd. Partnership,” or the abbreviation “L.P.” or “LP.”
- Choose a Registered Agent. North Dakota requires that every business entity have a registered agent to make sure that any important information or any legal issues will make it to the LP. A registered agent can be an individual resident of North Dakota or a business registered with the Secretary of State.
- Signature of General Partner. All LPs must have at least one general partner that is personally liable for the actions of the LP.
- Certificate of Limited Partnership. The Secretary of State does not provide a standard Certificate of Limited Partnership. This document requires the name of the LP, the principal office of the LP, the general character of the LP’s business, the name of the registered agent, the principal office address of the LP, general information on all general partners, and the business address of the registered agent.
- Partnership Agreement Optional. North Dakota does not require a partnership agreement but such an agreement is a good idea to resolve issues such as partner contributions, distribution of profits, partners’ authority, etc.
- Annual Report. North Dakota requires LP’s to submit an annual report which can be filed with the Secretary of State. Information on what to include in an annual report can be found online.
The forms required to form your business as an LP can be found on the Secretary of State website. The Certificate of Limited Partnership along with a processing fee can be filed with the Secretary of State.
There are several reasons why you might want to structure your business as an LP:
- Limited Liability: Like a corporation, LPs shields the personal assets of its limited partners from the debts and legal liability of the company. However, a limited partnership must have at least one general partner that is personally liable for all claims made against the LP.
- Pass-Through Tax Entity: LPs are taxed as a pass-through entity and avoid the double tax associated with corporations. This means that the LP itself is not taxed. Instead, partners are taxed according to their individual tax bracket when they receive a share of the LPs profits.
- Survivability: Unlike a general partnership, LPs do not have to be reformed every time a partner dies.
- Late Filing: An existing general partnership can convert to a limited partnership at any time if it fulfills the requirements listed above.
While the limited liability an ability to avoid the double tax associated with corporation can be appealing, there are a few disadvantages to structuring your business as an LP:
- Filing and Fees: Unlike a general partnership or sole proprietorship; LPs require filing formation forms and payment of some administrative fees which can cost upwards of $100 for initial filing, $25 in annual fees, and may require hiring lawyer.
- General Partner Liability: Unlike a limited liability company or a limited liability partnership, a limited partnership requires at least one general partner that is personally liable for the claims made against the LP.
If you are looking for an attorney to help you with structuring your business, then contact a local North Dakota Business Lawyer today to get the help you need.