It is important to understand a partnership before understanding what a limited partnership is.
A partnership is an association of two or more persons to carry on a business for profit as co-owners. A partnership is formed when the parties to a business have the right to control the business and to share in the profits. The parties will then be considered partners.
There are three types of partnerships: general partnerships, limited liability partnerships (i.e., LLPs), and limited partnerships. The type of partnership formed will determine the amount of liability an individual partner may face as part of the partnership.
What Is an LP?
A limited partnership (LP) is one way to set up your company. Other ways that your company can be set up include a sole proprietorship and a general partnership. Two types of partners make up an LP, one who enjoys limited liability in exchange for not controlling the LP and the other who runs the LP while being personally liable for it, which makes the LP different from other business structures.
The type of partner in charge of running the LP and, thus, personally liable for all that the LP does, is known as a general partner. Limited partners have limited liability, which allows them to protect their assets up to the amount they invested. You have to adhere to the Wyoming Secretary of State’s requirements if you want to have an LP in Wyoming.
What Are the Rights of a General Partner?
As a general partner, you are entitled to an equal share of the partnership’s profits unless specified by your partnership agreement. In addition, you have the right to withhold your consent to anything your partners do on behalf of the partnership.
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. Limited partnerships have this feature as one of their distinguishing characteristics.
A limited partner who decides to withdraw from a limited partnership must notify the partnership and file the necessary paperwork (i.e., withdrawal documents) with the state. In addition, the remaining partners will have to buy out the withdrawing partner.
When a partner withdraws from a general partnership, the partnership usually dissolves (terminates). General partnerships can also dissolve when a partner dies or becomes incapacitated.
What Are the Requirements for an LP?
LPs in Wyoming must meet several requirements to operate legally and fully as LPs. The name of your limited partnership must include the phrase “Limited Partnership.” Your company must also choose a registered agent who can be served with lawsuits. Agents can either be Wyoming-based companies or Wyoming residents over 18 engaged in the same line of work as the LP.
A partnership must have at least two partners: one general partner and one limited partner.
Every LP also needs to file paperwork with the Wyoming Secretary of State.
Finally, an LP is required to maintain an office in the state that contains a copy of the paperwork mentioned above, as well as copies of any other paperwork filed with the Secretary of State, copies of the LP’s financial statements, and tax returns for the past three years, and a current list of all the partners.
What Paperwork Do I Need to Form an LP?
To register an LP, you must print out the appropriate paperwork from the Wyoming Secretary of State’s website and send it via mail. The form you must fill out if your LP is domestic is called the Certificate of Limited Partnership.
The form asks for the LP’s name, address, and end date. You must provide the names, addresses, and signatures of each general partner and the registered agent on the form. A list of the amount to be contributed or invested is also required.
Foreign limited partnerships, or LPs founded in another country or state, must fill out a different form than domestic limited partnerships. That form is the Foreign Limited Partnership Application for Certificate of Registration. It must be mailed in with a certificate of good standing from the LP’s original state or creation. Listed on the form are the LP’s name, the name it will use while transacting business in Wyoming, the jurisdiction where the LP originated, and the date when it was formed.
Additionally, the form will ask you for almost all the same information as the Certificate of Limited Partnership, except you will not be asked to disclose the LP’s initial amount of capital.
What Benefits Does Wyoming Give to an LP?
Profits earned by the LP are not subject to state taxes in Wyoming. An LP’s profits are taxed through each partner’s personal income tax, and Wyoming does not have a personal income tax.
What Disadvantages Does Wyoming Give to an LP?
You can be fined $5,000 if you fail to register your limited partnership with the state before doing business in Wyoming as an LP. LPs must also register and file an annual report and a fee. The fee is either $50 or two-tenths of one mill on the dollar ($.0002) of the LP’s assets, depending on which amount is higher.
What If I Have a Dispute that Involves a Limited Partnership?
The amount of liability attributed to each partner is one of the primary factors separating all three partnerships. Doing this will make it easier to determine which partners are responsible for the partnership’s financial losses.
Limited partners are usually only liable for the amount they invested in the limited partnership. Nevertheless, if a limited partner violates their duties as a limited partner, they may be held personally liable for any injuries or losses they caused.
For example, if a limited partner represents themselves to a third party as a general partner and makes management decisions, they may be personally liable.
On the other hand, if the limited partner acted 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.
Occasionally, multiple partners in a partnership may be jointly liable for damages to the partnership or to the plaintiffs. The outcome will be determined by the facts surrounding the case and the liability agreement created between the partner and their partnership organization.
Should I Hire a Business Lawyer?
When creating an LP, it is best to speak with a Wyoming corporate lawyer in your area who can give you the right advice for your situation. A lawyer can help you set up your LP per Wyoming’s legal requirements.
An experienced business lawyer can assist you with legal tasks, such as creating the proper documents, negotiating partnership agreements, and assessing your legal rights and duties.
Furthermore, if you need to file or defend a limited partnership legal claim in court, an attorney can provide representation and help guide you through the process. Lastly, your attorney can keep you updated if there are any significant changes to business laws that might affect your interests or business rights.
