A partnership is a type of business structure. It involves an association of two or more individuals who carry on in the business as co-workers in a business for profit.
A partnership is formed when the individuals are able to share in the profits as well as have a right to control the business. Those individuals are considered partners even if they did not intend to form a partnership.
There are three different types of partnerships, which include:
- General partnerships;
- Limited liability partnerships (LLPs); and
- Limited partnerships (LPs).
The partnership structure the business uses determines the amount of liability each partner has as a part of the partnership.
What is a Limited Partnership?
There are many different ways in which an individual can structure their new business. One such structure is called a limited partnership (LP).
Limited partnerships offer advantages over general partnerships because two different types of partners are required, general partners and limited partners. At least one general and one limited partner are required.
The general partners handle day-to-day operations and management of the company. The limited partner is not involved in daily operations as is more of an investor.
A limited partner is only financially liable to the company up to the amount of funds they personally invested in the business.
The rules and regulations for forming a limited partnership vary from state to state. In Massachusetts, in order to form a limited partnership, the business must be registered as an LP with the Massachusetts Corporations Division.
What are the Requirements for a Limited Partnership?
A limited partnership cannot exist unless there are at least to owners, known as partners, in the limited partnership. As previously noted, there must be at least one general partner and at least one limited partner.
Under Massachusetts law, the business name must also include the words, “limited partnership.” These words cannot be abbreviated. This is in contrast to other states which allow the business to use “L.P.” following the name.
The limited partnership is required to have an agent for service of process. This agent must agree in writing that they can be served with legal documents on behalf of the LP. This agent must also reside in the state of Massachusetts or be authorized to do business there.
What Paperwork do I Need to Form a Limited Partnership?
In order to form a limited partnership in Massachusetts, the business is required to file a Limited Partnership Certificate with the Massachusetts Corporation Division. This form may be filed either online or by mail.
Information that is required on the form includes:
- The name of the limited partnership;
- The business address of the limited partnership;
- The general purpose of the limited partnership;
- Information regarding the agent for service of process, including the agent’s:
- Name;
- Address; and
- Signature; and
- The names and addresses of all general partners.
What is a Partnership Agreement? Does my Business Need One?
A partnership agreement is a legal document that provides the rights and responsibilities of the individuals who are involved in the limited partnership. It also details the rights and responsibilities of each type of partner. It may also define the scope of activity for the partnership.
Partnership agreements may include provisions regarding:
Partnership agreements are contracts that provide legal enforcement for the terms of operating the business. It is important to have these agreements in writing.
This is because partnership agreements may be referenced in the event a dispute or legal contention arises regarding the activities of the partnership or the partners.
If a lawsuit is filed, the court will likely examine the partnership agreement in order to determine the proper outcome of an issue pursuant to the terms to which the partners agreed.
Can I Withdraw from a Limited Partnership?
In a regular partnership, if a partner withdraws, or leaves the business, the partnership dissolves. However, in a limited partnership, those rules are different.
This is because a limited partner does not take part in the management of the company. A limited partner may withdraw from their role as a partner without causing the dissolution of the entire partnership.
A limited partner may also dissolve their role as limited partner if they begin to take an active role in the management of the business. At this point, they are no longer considered a limited partner and become liable as a general partner would be.
A limited partnership may be dissolved if a general partner passes away, retires, or withdraws from the business. However, the partnership agreement may provide otherwise.
If an individual wants to withdraw from their role as a limited partner, they may have to file a dissolution form with the state in which the company conducts business. In most cases, filing the form will suffice and the limited partner is not required to give notice to the business’ customers, clients, or suppliers.
A dissolution may require signatures of approval from the business’ general partners. Although the general partners may consent to the withdrawal of the limited partner, they will likely be hesitant to lose their financial contribution. The limited partner may consider selling their investment to the other partners or to another individual.
If the general partners resist allowing the limited partner to withdraw and are unwilling to purchase their investment, the limited partner should refer to the partnership agreement to determine what relief may be available.
Withdrawing from a partnership can be complex and the individual may face resistance. An attorney can assist with this issue and help protect the individual’s rights while facilitating their withdrawal from the limited partnership.
What Benefits Does Massachusetts Give to a Limited Partnership?
The State of Massachusetts is becoming increasingly business-friendly. It offers several tax incentives to businesses.
The Economic Development Incentive Program (EDIP) provides businesses that provide jobs to employees in Massachusetts with incentives including tax credits and exemptions from certain types of taxes.
One specific tax incentive is provided through the Life Sciences Investment Program. It provides up to hundreds of thousands of dollars in tax incentive awards to companies involved in life sciences, inducing health-related research and medical devices.
What Disadvantages Does Massachusetts Give to a Limited Partnership?
Every limited partnership in Massachusetts is required to file an annual report with the State of Massachusetts, which may be quite expensive.
This report costs $450 to file online and $500 to file by mail. If a limited partnership does not file the report for 2 consecutive years, the Massachusetts Secretary of State has the power to administratively dissolve the limited partnership and will likely do so.
Should I Hire a Lawyer?
It is essential to have the assistance of a Massachusetts corporate lawyer when you are forming a business in the state. Starting a new business can be difficult, overwhelming, and exciting all at the same time.
Your business lawyer can ensure your limited partnership meets the Massachusetts requirements. Having a lawyer on your side can help get your business off on the right foot.
If an issue occurs, it is important to note that you are able to withdraw from a limited partnership, if needed. Your attorney can assist you with any issues related to withdrawing from a partnership if you find it necessary to do so.
