Understanding what a partnership is, in general, can help you comprehend what a limited partnership is.
A partnership is an arrangement of two or more people who run a business together for profit. When two or more participants in a business have the right to control the business and the opportunity to share in the profits, a partnership is created. Then, the parties are referred to as partners.
General partnerships, limited liability partnerships (i.e., LLPs), and limited partnerships are the three forms of partnerships. The level of liability that each partner may incur as a member of the partnership will depend on the type of partnership that was created.
What is an L.P.?
A limited partnership, or L.P., is a business structure that offers its members (partners) limited liability while simultaneously having the structural and tax flexibility of a partnership. However, the assets of the general partners are not shielded by the limited liability element of the L.P. from the debts, losses, and legal claims pertaining to the limited partnership.
Like partnerships, limited partnerships are also exempt from many of the legal and tax obligations that apply to corporations.
What Conditions Must an L.P. Meet?
Only state legislation permits the formation of an L.P. As a result, there are significant regional differences in the rules and protections for L.P.s. In Kansas, there is a lot of latitude for L.P. formation and organization; however, there are a few standards that must be met:
- Pick a name for your L.P.: This name must include “Limited Partnership,” “L.P.,” or “L.P.” and be distinct from any other business names listed with the Kansas State Corporation Commission.
- Choose a resident agent of your choice: Every corporate entity must have a resident agent in Kansas to ensure that any critical information or legal issues reach the L.P. Any Kansas resident, LLC, partnership, or company with a physical address in Kansas may act as a resident agent (including the L.P. itself).
- Get a Limited Partnership Certificate: The Certificate of Limited Partnership is available as a fillable PDF from the Secretary of State. The name of the L.P., the address of the L.P.’s principal office, the name of the resident agent, the address of the L.P.’s principal office, and the business address of the resident agent must all be included in this document (must be in Kansas).
- Obtain the general partner’s signature: Every LP must specify at least one general partner who is personally responsible for the L.P.’s decisions.
- Submit a yearly report: Every LP must submit a yearly annual report under Kansas law. You have three options for submitting the yearly report to the Secretary of State: online, by mail, or in person.
- Create an Optional Partnership Agreement: It is a good idea to have an optional partnership agreement to address concerns like partner contributions, profit distribution, partner authority, etc.
What Documentation is Required to Form an L.P.?
On the Secretary of State’s website, you may find the forms needed to register your company as an L.P. You can submit the Certificate of Limited Partnership and processing fee in person, by mail, or online with the Secretary of State.
What Advantages Does Kansas Offer an L.P.?
For a number of reasons, you might desire to set up your company as an L.P.:
- Liability Limitation: Similar to a corporation, an L.P. insulates the private assets of its limited partners from the obligations and liabilities of the business. A limited partnership must, however, have at least one general partner who is personally responsible for all legal actions brought against the L.P.
- A limited partnership (L.P.) does not need to be rebuilt after each partner’s death, unlike a general partnership.
- L.P.s are taxed as pass-through entities and are exempt from the double taxation that applies to corporations. As a result, there is no taxation of the L.P. itself. Instead, when partners receive a portion of the L.P.’s income, they are taxed in accordance with their personal tax bracket.
- Late Submission: If a general partnership already exists and satisfies the aforementioned criteria, it may change at any moment to a limited partnership.
What Negative Effects Does Kansas Give to an L.P.?
There are some drawbacks to establishing your firm as an L.P., notwithstanding the restricted liability and potential to avoid the double taxation associated with corporations:
- Fees and Filing: Unlike a general partnership or sole proprietorship, limited partnerships (L.P.s) need to file formation documents, pay some administrative fees (up to $150 for the initial filing, $50 annually for registration fees, and maybe retain legal counsel), and submit formation documents.
- Default by a General Partner: A limited partnership must have at least one general partner who is personally accountable for any claims brought against the L.P., unlike a limited liability business or a limited liability partnership.
Is Withdrawal from a Limited Partnership an Option?
In contrast to a general partnership, a limited partnership allows a partner to leave the company without immediately dissolving it. This is merely one of the crucial characteristics that set a limited partnership apart from a general partnership.
Limited partners must notify the partnership and file the proper paperwork (i.e., documents related to the withdrawal) with the State when they intend to leave a limited partnership.
Additionally, the remaining limited partnership partners will need to replace the withdrawing partner.
In contrast, when a partner leaves a general partnership, the partnership will typically dissolve (come to an end). A general partnership may also end if one or more of its partners pass away or become disabled.
What Happens If I Have a Limited Partnership Dispute?
As was already mentioned, the degree of liability that can be attributed to each partner is one of the key differences between the three partnerships. This will make it easier to decide which partner should be held accountable for the partnership’s financial losses.
Limited partners often have liability limited to the amount of their contribution to the limited partnership. However, it is likely that a partner will be held personally responsible for any harm or losses they caused if they acted outside the bounds of their responsibilities as a limited partner.
For instance, a limited partner may be held personally responsible for their activities if they pretend to be a general partner and begin making management decisions or acting in that capacity toward a third party.
On the other hand, it is more probable that the overall limited partnership will be liable for any injuries or losses that follow if the limited partner was acting within the bounds of its obligations, which are often outlined by the provisions of an entity’s partnership agreement.
In rare circumstances, a partnership’s several participants may be held jointly liable for the partnership’s debts or for paying a plaintiff’s damages award. This will rely on the specific circumstances of the case, the liability agreement made and signed by a partner and their partnership organization, as well as the facts of the individual case.
Should I Employ an Attorney?
Contact a Kansas corporate attorney right now to acquire the assistance you require if you need legal counsel for business structuring. Use LegalMatch to find an attorney today.
