To have a better understanding of what a limited partnership is, it is good to know what a partnership is in general.
A partnership is an association of two or more persons to carry on a business for profit as co-owners. A partnership is formed when the parties to a business can share in the profits and if they have a right to control the business. Those parties will then be said to be partners.
There are three types of partnerships: general partnerships, limited liability partnerships (i.e., LLPs), and limited partnerships. The type of partnership that was formed will determine the amount of liability that an individual partner may face as part of the partnership.
What is an LP?
A limited partnership (“LP”) is a specific type of business partnership that enables each partner to achieve legal protection against individual liability for the debts, losses, and violations related to the overall partnership. All partners in limited partnerships have limited liability, which makes them different from other partnerships. Limited liability depends on each partner’s investment contribution. One or two general partners run a limited partnership venture.
In contrast, in a general partnership, each partner is individually and jointly responsible for the partnership’s losses. It can sometimes result in partners being disadvantaged, especially if they play a minor role in the partnership or have contributed less to the business.
A limited partnership must have at least one general partner to be considered properly formed. Managing the limited partnership and its day-to-day operations will be the responsibility of the general partner.
A limited partner has limited powers over the partnership and can only be held responsible for the extent of their investment. Therefore, they are primarily responsible for limited partnership investment duties.
In Rhode Island, the Rhode Island Uniform Limited Partnership Act (RIULPA) governs the Rhode Island limited partnerships.
What are the Requirements for an LP?
In Rhode Island, the requirements to form an LP are the following:
- File a Certificate of Limited Partnership: To form a Rhode Island Limited Partnership, the partners must file a document with the Rhode Island Secretary of State called “Certificate of Limited Partnership” (Form 300) and pay a filing fee.
- Check the Name of Your Limited Partnership: You must also name the LP and be sure to check that the name of the LP is not used and is unique from other business entities in Rhode Island. You can also reserve a name by filling out an Application for Reservation and paying a filing fee.
- Registered Agent: Rhode Island requires that all partnerships have a registered agent within the State.
- Partner Requirement: Rhode Island law does not limit the number but does require that limited partnerships have at least one general partner and at least one limited partner. The general partner will have control of day-to-day activities.
- File Annual Reports: Unlike some states, the State of Rhode Island requires all LPs to file annual reports and pay a filing fee with the Secretary of State.
What Paperwork Do I Need to Form an LP?
To form a Rhode Island Limited Partnership, the partners must file a document and pay a filing fee with the Secretary of State called the “Rhode Island Certificate of Limited Partnership.” The certificate must state the following:
- Name of the LP
- Address of office of LP
- Address of the agents of LP
- Name and Address of each partner of the LP
Once the limited partnership is formed, the limited partnership’s partnership agreement and RIULPA govern the operation and management of the limited partnership.
What Are the Record Keeping Requirements?
Rhode Island has a set of record-keeping requirements that limited partnerships must follow:
Each limited partnership shall keep at the office referred to in ORS 70.020 the following records:
- A list of the full name and business address of each partner
- A copy of the certificate of limited partnership and all certificates of amendment
- Copies of the limited partnership’s federal, state, and local income tax returns, if any
- Copies of any written partnership agreements and any limited partnership financial statements for the three most recent years.
Is it Possible to Withdraw From a Limited Partnership?
Unlike a general partnership, a partner in a limited partnership may withdraw from the business without subjecting it to an automatic dissolution. Limited partnerships are distinguished from general partnerships by this important characteristic.
Limited partners who withdraw from a limited partnership must notify the partnership and file the necessary paperwork (i.e., withdrawal documents) with the State. Additionally, the remaining partners will have to buy out the withdrawing partner.
When a partner withdraws from a general partnership, the partnership usually dissolves (terminates). In addition, a general partnership may dissolve when one or more of its partners dies or becomes incapacitated.
What If I Have a Dispute That Involves a Limited Partnership?
As discussed above, one of the primary differences between all three partnerships is the amount of liability each partner can assume. In this way, it will be possible to determine which partner should be held liable for the partnership’s losses.
Limited partners are generally only liable to the extent of their investment in the limited partnership. Limited partners may be held personally liable for injuries or losses they cause if they act outside the scope of their duties as limited partners.
A limited partner could be held personally liable for their actions if they represent themselves as a general partner and make management decisions or represent as much to a third party.
On the other hand, if the limited partner was acting within the scope of their duties, which are usually set forth by the terms of an entity’s partnership agreement, it is more likely that the overall limited partnership will be responsible for any injuries or losses that result.
Multiple partners of a partnership can be jointly liable, either to the partnership or for damages awarded to plaintiffs. An individual’s liability agreement, as well as the facts surrounding the case, will determine the outcome of the case.
What Benefits Does Rhode Island Give to an LP?
There are several benefits of having a limited partnership in Rhode Island. These benefits are:
- Limited Liability: Limited partners who form an LP and contribute money only face limited liability. This means that if the business goes bankrupt, the limited partners would only be liable for the amount of money they invested or contributed to the business and nothing more.
- Tax Benefits: The profits and losses in an LP flow through the business to the partners, all of whom are taxed on their personal income tax returns and get to share the profits and losses.
- Less paperwork: An LP has less paperwork than the formation of a corporation.
What Disadvantages Does Rhode Island Give to an LP?
Limited partnerships in Rhode Island can have some disadvantages. Some of these are that limited partnerships have less of a say in the business than general partners. The general partners view becoming active in the LP as a risk. The income of limited partners is not considered for tax purposes, so they usually have to pay self-employment tax.
Should I Hire a Business Lawyer?
Limited partnerships are subject to complicated legal requirements and protections. Each case and limited partnership is unique. The laws governing limited partnerships vary from state to state.
It’s in your best interests to hire a local Rhode Island corporate lawyer if you need help with the limited partnership laws in your area. It will be your attorney’s responsibility to assist you with tasks such as filing, creating documents, and negotiating partnership agreements.
