Do you want to form a limited partnership (LP) in Indiana, but you’re unfamiliar with the formation process? Read on to learn more.
A limited partnership can be a great alternative to a general partnership. Still, the LP is more difficult to form than a general partnership. Read on to learn the crucial details of creating a limited partnership business in Indiana.
Partnerships are one of the most commonly formed business entities. Unlike a general partnership, a limited partnership (LP) allows a business to have both general and limited partners. A general partner takes an active role in the business’ management. A limited partner is comparable to a “silent investor” who invests in the partnership but does not actively participate in the business’ operation.
What Is an Indiana Limited Partnership?
There are several significant differences between the general and limited partnership (LP) partners roles. In a general partnership, the partners split profits evenly and take equal responsibility for liability. General partners are personally liable for the company’s debts and settlements.
There is at least one general partner in a limited partnership and one limited partner in a limited partnership. A limited partner is a partner that does not have managerial responsibilities, and their liability is limited to the amount of money they invested in the partnership.
Sometimes, you’ll hear limited partners referred to as “silent partners” due to their lack of direct involvement in the company’s day-to-day operations.
Another significant difference is that the general partnership is not a formal business structure. General partnerships don’t even need to file formation documents with Indiana or pay a formation fee. The general partnership is formed when the partners begin transacting business together.
A limited partnership has a formal formation process with the Indiana state government, and there is also a formation fee.
What are the Requirements for a Limited Partnership in Indiana?
The process of forming a limited partnership varies from state to state. The Secretary of State is responsible for registering limited partnerships in Indiana.
A limited partnership must have one general partner and one limited partner. If your partnership operates under an assumed name (something other than the general partners’ surname), you must register the business’s name with the state. Additionally, you must designate your business’ limited partnership status by putting “LP” after its name.
Finally, you must designate a registered agent for your LP. A registered agent is authorized to accept important documents for your business. Your agent must be physically present in the state of Indiana. If you need help selecting a registered agent, a business lawyer can help you.
What Paperwork Do I Need to Form a Limited Partnership?
To create a limited partnership, you must file a Certificate of Limited Partnership with the Secretary of State. This form can be submitted either online or by mail. You must provide the following information on your Certificate of Limited Partnership:
- The name of your partnership,
- The business’ physical address,
- The name and address of your registered agent,
- The names and addresses of all the LP’s general partners, and
- The latest date on which the limited partnership will terminate. (In Indiana, an LP cannot operate indefinitely.)
You may have to file additional paperwork if you plan on operating your business under an assumed name. In addition to your state filing, you must draft a partnership agreement. A partnership agreement defines the rights and responsibilities of both general and limited partners. For example, it may set out the procedures for distributing profits and terminating the partnership. A lawyer can help you create a well-written and legally binding partnership agreement.
How Do I Designate a Registered Agent?
Every limited partnership in Indiana is required to designate a registered agent. A registered agent is an individual or registered agent service that receives government correspondence for your business and then forwards those documents to you. According to the Indiana Secretary of State:
“All Corporations, Limited Liability Companies, Limited Partnerships, and Limited Liability Partnerships must maintain a Registered Agent and Registered Address within the State of Indiana. The Registered Agent is the legal representative and contact for the business. The Registered Agent cannot be the business entity itself. The Registered Agent may be a person or another formal business association incorporated (or qualified) in Indiana and maintains a valid Registered Agent in Indiana.”
Without a registered agent in Indiana, you could lose your good standing. The state has the right to dissolve your LP without good standing if they decide to. In a worst-case scenario, the state could fail to alert you about a lawsuit against your company, which could lead to a judgment against your business because you didn’t defend yourself.
How Do I File a Certificate of Limited Partnership?
Establishing your limited partnership requires the filing of a Certificate of Limited Partnership. To complete and submit it, you’ll need the following information:
- Name of the limited partnership
- Address of the office
- Name and address of the registered agent
- Name and business address of all general partners
- Signature of all general partners
- The latest date at which the partnership is to dissolve
To complete the Certificate of Limited Partnership, you may mail it to the Business Services division of the Secretary of State, or you may complete the document online.
What is the Cost to Form an LP?
Indiana charges a filing fee of $100 to form a limited partnership.
What is the Processing Time?
The Indiana Secretary of State has no standard processing time for the Certificate of Limited Partnership document.
How Do I Create a Limited Partnership Agreement
While not legally required by the state of Indiana, a limited partnership agreement outlines some of the fundamental operating principles of the business. Even though you don’t have to submit it to the state to form your LP, it’s still a vital document that describes the exact nature of the agreement between the general partners and limited partners.
The information in a limited partnership agreement varies depending on the nature of your business and the size of your company. Have in writing:
- The term (in years) of your partnership
- Identities and roles of general and limited partners
- Initial capitalization and ongoing capital contributions
- Allocation of profits/losses
- Management structure
- Voting rights and meeting plans
- Accounting and record-keeping practices
- Conditions for transfer and dissolution
As a best practice, it’s good to know the information above.
What Benefits Does Indiana Give to a Limited Partnership?
Limited partnerships have specific benefits. First, an LP does not have to file taxes. Instead, its income passes through to its partners (who must report it to the IRS and pay taxes).
If you are a limited partner, you may not be personally liable for the business’s debts and other financial obligations. As long as a limited partner does not take an active role in the partnership’s management, their personal assets cannot be used to pay the partnership’s debts.
What Disadvantages Does Indiana Give to a Limited Partnership?
General partners, however, are personally liable for the business’s debts and other obligations (such as legal judgments). A general partner’s personal assets can be seized to collect a debt or judgment against the LP. If you form a limited partnership, general partners should consider purchasing liability insurance to help offset this risk.
Consider creating a limited liability partnership (LLP). All partners have limited liability protections in an LLP, but different rules and procedures apply to LLPs in Indiana. A business lawyer can help you decide which structure is best for you.
Should I Hire a Lawyer?
While completing a form is a simple process, a lot more goes into structuring a limited partnership. For example, you should create a legally binding partnership agreement, evaluate liability insurance policies, and have ongoing reporting and other legal obligations. An Indiana corporate lawyer can help you follow the correct procedures and protect your financial interests.
