Limited partnerships (LP), limited liability companies (LLC), and corporations are all different ways to structure a business. LPs are popular because they allow for pass-through taxation. This means that the profits are only taxed as part of the partners’ income. The structure also allows for limited liability for limited partners.
Since limited partners have limited liability, they are only responsible for the amount of money they contribute to the LP. However, they must relinquish control over the LP to the general partners in order to qualify for the limited liability. Wisconsin businesses that want to be an LP have to be registered as such with the Wisconsin Department of Financial Institutions.
Wisconsin requires that the LP’s name include the designators “L.P.”, “LP”, or “limited partnership.” An LP must have: at least one general partner and one limited partner; a registered agent who lives or is authorized to do business in Wisconsin; and an office where the LP houses a number of important documents, such as a list of the limited partners and their addresses.
Domestic LPs, which are LPs that originate in Wisconsin, are required to have several additional documents at their office compared with foreign LPs, which are LPs formed outside of the state.
In order to register as an LP in Wisconsin, a company needs to file paperwork with the Wisconsin Department of Financial Institutions. Domestic LPs will be required to file a Certificate of Domestic Limited Partnership.
The form will ask you to list the name of the LP, the address of the office where the LP will maintain its records, and the date the LP will end. You are also required to state the names and addresses of the registered agent and all of the general members. Lastly, each general partner will be required to sign the form.
Foreign LPs are required to file a Foreign Limited Partnership Application. This form needs the LP’s name, any other name that the LP intends to use to do business, where and when the LP was created, and the name and address of the registered agent. You will also be required to provide the address of either the principal office or the office where the LP’s records are maintained. All of the general partners are required to both sign and provide their name and address on the form.
The paperwork and requirements for establishing an LP in the state of Wisconsin can sometimes be complex. It is highly recommended that you work with a business lawyer who can help ensure that all the documents and required items are properly completed and submitted in a timely way.
Wisconsin offers a number of different of tax exemptions and credits that could prove helpful to starting an LP in the state. At least 25% of all new companies in the state of Wisconsin qualify for early investment tax credits. Also, capital gains for money that is invested in qualified businesses are not subject to the capital gains tax once the investment has been held without interruption for 5 years.
Another difference between limited partnerships and more traditional business partnership structures is in the way that they are terminated. In other types of partnership arrangements, the business may be subject to dissolution if a general partner withdraws, retires, or if they become deceased. In comparison, a limited partnership will usually not dissolve if a limited partner withdraws or retires. This can allow for more flexibility and adaptation for the organization in the long run.
Wisconsin is associated with one of the higher individual income tax rates in the country, as it can go all the way up to 7.65%. Since LP partners are required to pay income tax on the profits that they receive from the LP, it may be more expensive to have an LP in Wisconsin than in another state due to the high income tax.
Also, LPs with at least one nonresident partner must withhold and pay the nonresident partner’s income tax for the partner, unless the LP’s profits are less than $25,000 or the nonresident partner is otherwise exempt.
Besides these considerations, LPs can still have other disadvantages. For instance, although the business will not terminate if a limited partner ends their role with the company, these types of situations can still cause some legal issues or disputes.
Other issues can involve specific terms in the partnership agreement or contract. Thus, it may be necessary to have any contracts or agreements reviewed in order to understand each party’s rights with regards to their role in the partnership.
When creating an LP, you will want to ensure you are filling out all of the paperwork properly. The best way to do this is to hire a Wisconsin business lawyer. Your attorney can provide you with legal advice for any questions you may have, and can also represent you in court if a lawsuit arises.