A limited partnership, which is commonly abbreviated as an “LP”, is a specific type of business structure that enables some of its partners to reduce their risk of personal exposure to liability and the debts of the partnership. These partners are known as “limited partners” in the business, as opposed to a “general partner.”
Limited partners enjoy protections from liability in exchange for giving up their management rights in the partnership. Instead, they can only be held responsible in so far as the extent of their investment or contribution to the business. This is in direct contrast to general partners who have both managerial and legal authority, as well as can be held personally responsible for debts or liabilities associated with the business.
Limited partnerships can offer many benefits to business owners who operate small businesses and need a partner to invest in their business to keep it up and running. This can be a lucrative arrangement for investors who want to contribute to a partnership, but would prefer not to have to make management-level decisions for the business or be held personally responsible for any losses that the business experiences.
To learn more about the different types of business entities offered in New Mexico state, you should contact a local business lawyer for further advice.
What are the Requirements for an LP?
There are several requirements for individuals who wish to establish a limited partnership in the state of New Mexico. Pursuant to Mexico’s Uniform Limited Partnerships statute, a person who intends to form a limited partnership or a domestic partnership must file a Certificate of Limited Partnership with the New Mexico Secretary of State.
Among several other details, a Certificate of Limited Partnership must contain the name of the business. It is important to note that New Mexico state law requires the term “Limited Partnership” to be part of the name of the entity. New Mexico state law also does not allow for abbreviations, meaning that the partners cannot refer to their limited partnership as an “LP,” nor can the name of the business include the “LP” designation.
New Mexico also requires limited partnerships to have an agent for service of process who is a resident of the state. This is true regardless of whether the business is a domestic or foreign limited partnership. The organization must maintain a physical office in the state as well for record-keeping purposes.
In addition, it is generally recommended that persons forming a limited partnership draft a limited partnership agreement. This agreement will outline the responsibilities of the partners and will provide guidelines for how the business will be run.
A limited partnership agreement can also be useful to have to separate the differences of what is required of a limited partner versus a general partner. Remember, limited partners will be responsible for filing and paying federal, state, and local taxes on the partnership via their personal tax returns.
Finally, if a limited partnership is started within a particular industry, the partners should check to confirm that they are not required to obtain any other type of business license and/or permit under state law in order to operate a business in the state of New Mexico.
What Paperwork Do I Need to Form an LP?
Some paperwork that persons forming a limited partnership in New Mexico will most likely need for registration purposes include the following documents:
- Two signed copies of the Certificate of Limited Partnership;
- A limited partnership agreement (note this is optional);
- A list of each general and limited partner and the amount that each of those partners contributed as an investment in the partnership;
- Copies of the Form of Contribution that specifies what each partner contributed;
- The name and address of each limited and general partner;
- The name and address associated with the limited partnership;
- A Certificate of Amendment of Limited Partnership (if applicable);
- A copy of the receipt that proves the partners paid the applicable filing or registration fee to submit the limited partnership paperwork to the Secretary of State; and/or
- Various other documentation that may pertain to the business (e.g., copies of business licenses, trademark registration, etc.).
What Benefits Does New Mexico Give to an LP?
One of the greatest benefits that limited partnerships offer to limited partners in the business is that they must file taxes for the business using their personal tax returns. This means that the business will not be responsible for paying taxes because a limited partnership is considered as a pass or flow-through entity.
Another benefit of limited partnerships is that they do not require the other partners to wind up or dissolve the partnership if one of the limited partners dies or decides to leave the business. Thus, the business will be allowed to continue operating until the other partners decide to dissolve the business or the business goes completely bankrupt and is forced to cease all operations.
One other advantage that New Mexico may offer limited partnerships is the fact that they are so infrequent in the state. Therefore, between the lack of limited partnerships in New Mexico and the requirement that limited partnerships must contain this phrase in the name of the business, it may be a way for a limited partnership to distinguish themselves from other businesses in the state. This could mean more sales or a better reputation if the business is run properly and successful.
What Disadvantages Does New Mexico Give to an LP?
One of the greatest disadvantages to operating a limited partnership in New Mexico is that the person who serves as the general partner in a limited partnership can be held liable in the event that there are any liabilities or losses associated with the business.
In contrast, a limited partner can only be held liable for such losses or debts as a partner of the business. This means that a creditor cannot collect money from them personally unless they are found guilty of a crime.
Another disadvantage of limited partnerships, but this time for the limited partners, is that they have very little control or say over decisions in the business. This can cause disputes to arise between the general and limited partners. Unfortunately, to resolve such matters may require the parties in conflict to settle their dispute in court, which can be costly.
One last disadvantage of starting a limited partnership in New Mexico is that the business must maintain a physical office in the state as well as is required to hire a registered agent who is a resident of New Mexico. This means that foreign limited partnerships will not only need to pay taxes for the office where their headquarters is located, but also in New Mexico and will have to pay fees to hire and retain a registered agent who is a resident of the state.
Should I Hire a Business Lawyer?
The legal requirements to establish a limited partnership often vary widely by state. Specifically, in the state of New Mexico, persons looking to structure their business as an LP will be required to comply with several unique rules. Accordingly, it may be in your best interest to hire a New Mexico corporate lawyer if you need assistance with setting-up an LP and in interpreting New Mexico’s business laws.
A lawyer who has experience in handling business matters in New Mexico will be able to provide a number of important legal services for your LP, such as drafting the necessary legal documents to form an LP, negotiating partnership agreements, and discussing the potential rights and duties you have as a general or limited partner in the business.
In addition, if you need to file a claim against a legal partnership, or alternatively, need to defend your LP against a lawsuit in court, your lawyer will be able to guide you through either process and can provide legal representation during any related proceedings.
