Partnerships are one of the most generally created business commodities. A limited partnership (LP) authorizes a company to have both general and limited partners. A general partner takes an energetic role in the company’s management. A limited partner is similar to a “silent investor” who supports the partnership but does not vigorously partake in the company’s operation.
The procedure for creating a limited partnership differs from state to state. In South Carolina, the Uniform Limited Partnership Act oversees the composition and administration of LPs. The Secretary of State is accountable for the enrollment of limited partnerships.
A limited partnership can be a wonderful alternative to a general partnership. Still, the LP is more complicated to assemble than the general partnership’s more informal disposition. This article will examine all the important elements of creating this business style in South Carolina.
There are several noteworthy distinctions between the general and limited partnerships (LP), beginning with the partners’ positions. With a general partnership, the partners divide earnings evenly and take equal accountability when it comes to liability ― general partners are personally responsible for the business’s obligations and payments.
With a limited partnership, at minimum, one general partner and one limited partner, which is the name for a partner that does not have administrative duties. Their liability is restricted to the portion of the capital they invested in the partnership.
Occasionally, you’ll hear limited partners referred to as “silent partners” due to their lack of direct involvement in the organization’s day-to-day processes.
Another significant distinction is that the general partnership is not a traditional company form, which means you don’t actually need to file formation papers with the state of South Carolina or pay any formation cost. The general partnership is created when the partners start transacting business jointly.
On the other hand, a limited partnership does contain a standard formation method with the South Carolina state government, and there is correspondingly a formation expense involved.
What are the Prerequisites for a Limited Partnership in South Carolina?
In South Carolina, a limited partnership must retain at least one general partner and one limited partner. If your partnership performs under an assumed title (something different from the partners’ surname), you must record the business’s name with the state. Further, you must specify your business’ limited partnership status by placing “L.P.” after its name.
Eventually, you must appoint a registered agent for your LP. A registered agent is somebody qualified to receive crucial records (like paperwork instituting a lawsuit) for your company. Your registered agent must be physically present in South Carolina. If you need assistance choosing a registered agent, a business attorney can assist you with the procedure.
What Paperwork is Required to Begin a Limited Partnership?
To form a limited partnership, you must file a Certificate of Limited Partnership with the Secretary of State. You must deliver the following details on your Certificate of Limited Partnership:
- The title of your partnership,
- The name, address, and signature of your registered agent,
- The company’s principal address,
- The names, addresses, and signatures of the general partners,
- The limited partnership’s latest date of dissolution,
- Whether you are postponing the effective date of your LP’s certificate.
You may have to file extra paperwork if you intend on operating your company under an assumed name.
In addition to your state filing, you should think about preparing a partnership agreement. A partnership agreement specifies the privileges and duties of both general and limited partners. For instance, a partnership agreement may establish the policies for profit allotment, dispute resolution, and terminating the partnership.
What are the Pros of a South Carolina Limited Partnership?
Limited partnerships have precise advantages. First, an LP does not have to pay income taxes. Rather, its income passes through to its partners (who must report it to the IRS and pay taxes).
If you are a limited partner, you may not be personally responsible for the company’s obligations and other monetary deficits. As long as a limited partner does not take a functional position in the partnership’s management, your personal assets cannot be gathered to fulfill the LP’s debts.
What are the Cons of a South Carolina Limited Partnership?
General partners, nevertheless, are personally liable for the company’s obligations and other debts (such as lawful verdicts). A general partner’s personal assets can be taken to gather a debt or verdict against the LP. If you create a limited partnership, general partners should consider purchasing liability insurance to help offset this risk.
Alternatively, you can think of starting a limited liability partnership (LLP). In an LLP, all partners have limited liability protections. Nevertheless, additional regulations and policies apply to LLPs in South Carolina. A business attorney can assist you in determining which company format is most suitable for you.
How Do I Handle Taxation Necessities?
Federal Provisions
Limited partnerships need a federal tax ID number or EIN. An EIN is the business version of a social security number, and it’s used for a combination of essential LP procedures.
For example, you’ll require an EIN if you desire to employ any workers, and many banks mandate them to open company bank accounts as well. You’ll also require one for tax intents, hence the federal tax ID number. Obtain an EIN for your LP for free via the IRS.
State Provisions
In South Carolina, limited partnerships are typically set concerning the business’s goods or services. In most cases, businesses marketing taxable goods or services within the state will be instructed to pay sales and use tax, though other business taxes may be required.
Fortunately, the state has abundant help and data about tax liabilities and filing necessities. From the South Carolina Department of Revenue’s website, you can analyze different company taxes, uncover your tax liabilities, register your business, and file online.
Local Necessities
Depending on where in South Carolina your company is found, you may also need to produce local taxes.
Some cities in South Carolina (such as Greenville) will probably have regional tax necessities. Always check with the taxation office of your county or town to ensure you’re mindful of all local tax liabilities.
How Do I Open a Business Bank Account?
Launch a company bank account to keep your company and personal finances individually. This is necessary because it helps guard your personal assets and makes filing taxes much more manageable. Once you acquire your EIN from the IRS, you’ll be capable of using it to launch an account at the bank or credit union of your choosing.
Should I Hire a Lawyer?
If you would rather have experts take care of your formation paperwork for you, you have several options.
If you desire the greatest possible extent of expertise, you should contemplate employing a business lawyer to create your limited partnership. This is definitely a more pricey path, but if you want the peace of mind that every step is finished precisely ― and that all of your alternatives have been exhaustively examined ― employing an attorney is a terrific choice.
While completing a form is a simple process, much more goes into structuring a limited partnership. For example, you should create a legally binding partnership agreement, evaluate liability insurance policies, and have ongoing reporting and other legal obligations. A South Carolina corporate lawyer can help you follow the correct procedures and protect your limited partnership.
