How to Form a Limited Partnership (LP) in Ohio

Business management structure can dictate factors such as:

• How much money business owners can collect from investors;
• The number of members who are allowed to sit on a company board; and
• How the business will be taxed.

There are a number of different business management structures, such as a C Corporation, general partnership, or a limited liability company. Some business management structures require that its owners adhere to certain formational rules. An example of this would be how forming a limited partnership requires that there be at least one general partner who is assigned to manage the entire business, and at least one limited partner, in order to continue operating as a lawful limited partnership.

Generally speaking, some of the most popular types of business management structures include:

• Sole Proprietorships: Businesses that can be formed by a single owner. While a sole proprietorship does not need to be registered with the state, there is little paperwork and minimal procedural requirements. Because there is only one owner of a sole proprietorship, they are solely responsible for addressing all management aspects of the company. Additionally, sole proprietors can be held liable for any risks or liabilities that are incurred by the business;
• Corporations: A legal entity that is regulated by state law and is considered to be separate from its owners. What this means is that only the corporation itself can be held liable for debts and liabilities. There are many different types of corporations, classified according to specific factors such as their purpose, the number of shareholders, the amount of stock that is to be issued, and their overall tax structure;
• General Partnerships: A general partnership is generally formed by two or more people who wish to be co-owners of a for-profit business. As long as both parties intended to make money from a product or service that they offer, they are considered to have entered into a general partnership. General partners can be held both individually and jointly liable for any losses or debts that are incurred by the partnership. Additionally, they can be held liable to the other partners if they breach their fiduciary duty to the business and any third parties;
• Limited Partnerships: A limited partnership has stricter requirements when compared to a general partnership. Limited partnerships must contain at least one general partner to oversee and manage the company and at least one limited partner. Limited partners will have limited authority over this type of partnership and can only be held liable to the extent of their investment. Similar to general partnerships, the general partners in a limited partnership can be held both jointly and individually liable for any company debts and risks;
• Limited Liability Partnerships: Partners have the same obligations and financial rights as those found in general partnerships. However, the partners are required to register the business with the state. While limited liability partnerships offer the benefit of being free from the debts and liabilities of other parties and the partnership itself, each partner remains liable for their own actions or any conduct that they personally supervise or demand; and/or
• Limited Liability Companies: Limited liability companies combine partnership tax arrangements and management styles with the liability benefits found under a corporation. Members of a limited liability company cannot be held responsible for any debts incurred by the business. Additionally, members choose how they wish to be taxed.

How Do I Form A Limited Partnership (“LP”) In Ohio?

To reiterate, an LP or Limited Partnership is a business management structure that provides limited liability to its members. It also provides the structural and tax flexibility of a partnership. The assets of its limited partners are protected from the debts, losses, and legal claims related to the limited partnership but not the assets of general partners. Similar to partnerships, LPs are free of many of the organizational requirements of a corporation and corporation taxes.

An LP can only be formed under state law, which means that the requirements and protections for LPs can vary from state to state. In Ohio, while there is considerable flexibility when creating and structuring LPs, there are some mandatory requirements:

• Choose a Name: This name must be different from all other business names that are on record at the Ohio Secretary of State. It must also include either “limited partnership,” “limited,” “L.P.,” or “Ltd.”
• Choose a Statutory Agent: Ohio requires that every business entity maintain a statutory agent, in order to ensure that any important information or any legal issues will be made known to the LP. This can be any Ohio resident or business who has an address in the state of Ohio.
• Signature of General Partner: All LPs must have at least one general partner that is held personally liable for the actions of the LP.
• Certificate of Limited Partnership: The Secretary of State provides a Certificate of Limited Partnership on their website, requiring:
  1. The name of the LP;
  2. The principal office of the LP;
  3. The name of the statutory agent;
  4. The principal office address of the LP;
  5. General information for all general partners; and
  6. The business address of the registered agent, which must be in Ohio.

The forms required to form your business as an LP can be found on the Secretary of State’s website. The Certificate of Limited Partnership, along with a processing fee, can be filed with the Secretary of State either by mail or online.

What Are The Advantages And Disadvantages Of Forming An LP In Ohio?

Some examples of why you would want to structure your business as an LP in Ohio include:

• Pass-Through Tax Entity: In Ohio, LPs are taxed as a pass-through entity, and as such, they avoid the double tax that is generally associated with corporations. What this means is that the LP itself is not taxed; rather, partners are taxed according to their individual tax bracket when they receive a share of the LPs profits;
• Biennial Reporting: LPs are not generally required to file biennial reports in Ohio;
• Survivability: Unlike a general partnership, LPs do not have to be reformed or dissolved every time a partner dies; and/or
• Late Filing: In Ohio, an existing general partnership can convert to a limited partnership at any time if it fulfills the requirements that are listed above.

Some examples of the disadvantages associated with structuring your business as an LP in Ohio would be:

• Filing and Fees: Unlike a general partnership or sole proprietorship, LPs require filing formation forms and payment of some administrative fees. These fees can cost upwards of $100 for initial filing, and may require hiring a lawyer; or
• General Partner Liability: Unlike a limited liability company or a limited liability partnership, a limited partnership requires at least one general partner that is personally liable for the claims made against the LP.

Do I Need A Lawyer To Form A Limited Partnership (LP) In Ohio?

If you would like to form a limited partnership in Ohio, you should contact a local corporate lawyer in Ohio. An experienced and local attorney can guide you through the formation process and will also be able to represent you in court, as needed, should any legal issues arise.