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. A partnership is created when two or more participants in a business have the right to control the business and the opportunity to share in the profits. 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 each partner may incur as a member of the partnership will depend on the type of partnership created.
What is an LP?
Limited partnerships are one business structure (LP). The fact that an LP has both general and limited partners distinguishes it from a general partnership. The day-to-day management is typically in the hands of the general partners, who are also personally responsible for all corporate decisions.
Limited partners are typically not actively involved in the company and are solely accountable for their invested cash. To take advantage of an LP’s advantages, you must register your LP with the Office of the Minnesota Secretary of State.
In contrast, each member in a general partnership is jointly and severally liable for the losses sustained by the partnership. This can occasionally put partners at a disadvantage, particularly if they have a smaller role in the partnership or have made smaller financial contributions to the company than the other general partners.
Despite being referred to as a limited partnership, each limited partnership must include at least one general partner to be legally constituted. The limited partnership’s management decisions and day-to-day operations will be under the general partner’s control.
A limited partner can only be held accountable for the amount of their investment in the limited partnership and has only limited control over the partnership. As a result, they are primarily in charge of limited partnership investing tasks.
What Conditions Must an LP Meet?
Your LP must fulfill several conditions in Minnesota before it can be considered an LP. It must, among other things, have a distinctive name that includes “limited partnership,” “LP,” or “LP.” A minimum of two partners is another prerequisite for an LP. Both partners must be limited partners, one of which must be a general partner. The LP must also have a process server that can receive legal documents if it is sued.
You still have standards to complete to conduct business in Minnesota if your limited partnership has previously been established in another state or nation, making it a foreign limited partnership. A foreign limited partnership must get a Certificate of Good Standing from its original base of operations and a Minnesota tax identification number.
What Documentation Is Necessary to Form an LP?
Both international and domestic (i.e., non-foreign) limited partnerships have different forms. You can submit your limited partnership (LP) to the Minnesota Secretary of State either online or by completing and mailing the necessary form, depending on which one you must file.
A domestic LP must submit a Certificate of Limited Partnership. You must include the name and address of the company as well as the agent for the service of process on this paperwork.
You must also specify when you want the business to start operating and whether you plan to register the company as an LP. Last, the general partner’s name and address are required on the application (s).
There is an optional “business snapshot” that you can complete at the end of the form if you’d like to give the state more details.
A Foreign Limited Partnership Certificate of Authority must be completed and filed with the Certificate of Good Standing to register a foreign LP in Minnesota. The Foreign Limited Partnership Certificate of Authority does not contain a “business snapshot,” but it does require many of the same details as the Certificate of Limited 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. The remaining limited partnership partners will also 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 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, a partner will likely 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 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 is 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.
What Perks Does an LP Get in Minnesota?
Minnesota is interesting to potential LP companies because it has a reputation for being a very business-friendly state. The state offers a range of tax credits for various business-related activities, including job growth and R&D.
What Drawbacks Do LPs Face in Minnesota?
The fact that the general partner has complete control over how the business is operated is one of the main problems with an LP. A limited partner is prohibited from acting on behalf of the LP by Minnesota law since doing so could subject them to full personal liability for any business decisions they make.
Furthermore, regardless of whether they are local or international, LPs must file an annual renewal or risk being dissolved by the state.
Should I Hire a Lawyer?
When forming a firm as an LP, it is crucial to follow all the rules precisely because even the smallest error could prevent you from providing limited partners with limited liability status. Fortunately, a corporate lawyer in Minnesota can assist you in setting up your LP and make sure you don’t make any blunders.
