Do you want to form a limited partnership (LP) in South Dakota, but you’re not familiar with the formation process? Read on to find out more.
A limited partnership can be a great alternative to a general partnership. Still, the LP is more difficult to form than a general partnership. This article will inform you about starting this business type in South Dakota.
Partnerships are one of the most commonly formed business entities. A limited partnership (LP) allows a business to have both general and limited partners. A general partner takes an active role in the business’ management. A limited partner is comparable to a “silent investor” who invests in the partnership but does not actively participate in the business’ operation.
The process of forming a limited partnership varies from state to state. In South Dakota, the Uniform Limited Partnership Act governs the creation and management of LPs. The Secretary of State is responsible for the registration of limited partnerships.
What Is a South Dakota Limited Partnership?
There are several significant differences between the general partnership and the limited partnership (LP), starting with the partners’ roles. The partners split profits evenly and take equal responsibility for liability with a general partnership. General partners are personally liable for the company’s debts and settlements.
With a limited partnership, there is at least one general partner and one limited partner. A limited partner does not have managerial responsibilities, and their liability is limited to the amount of money they invested in the partnership.
Sometimes, you’ll hear limited partners referred to as “silent partners” due to their lack of direct involvement in the company’s day-to-day operations.
Another significant difference is that the general partnership is not a formal business structure. General partnerships don’t even need to file formation documents with South Dakota or pay any sort of formation fee. The general partnership is formed when the partners begin transacting business together.
On the other hand, a limited partnership has a formal formation process with the South Dakota state government. There is also a formation fee involved.
What are the Requirements for a Limited Partnership in South Dakota?
In South Dakota, a limited partnership must have at least one general partner and one limited partner. If your partnership operates under an assumed name (something other than the partners’ surname), you must register the business’s name with the state. Additionally, you must designate your business’ limited partnership status by putting “L.P.” after its name.
You must designate a registered agent for your LP. A registered agent is authorized to accept documents for your business. The registered agent must be physically present in South Dakota. If you need help selecting a registered agent, a business lawyer can help you.
What Paperwork Do I Need to Form a Limited Partnership?
To create a limited partnership, you must file a Certificate of Limited Partnership with the Secretary of State. You must provide the following information on your Certificate of Limited Partnership:
- The name of your partnership,
- The business’ actual and mailing addresses,
- The name and address of your registered agent,
- Your registered agent’s CRA number (if using a commercial registered agent),
- The names and addresses of the general partners,
- The LP’s effective date,
- The LP’s latest possible date of dissolution, and
- Any other provisions the general partners wish to include.
You may have to file additional paperwork if you plan on operating your business under an assumed name.
In addition to your state filing, you should consider drafting a partnership agreement. A partnership agreement defines the rights and responsibilities of both general and limited partners. For example, a partnership agreement may set out the procedures for profit distribution, dispute resolution, and terminating the partnership.
How Do I Choose an LP Name?
South Dakota does not allow limited partnerships to operate under the individual names of the partners. A limited partnership must have a distinct business name.
Your business’s name is the first impression you get to make on potential customers. Choosing the right name is important. There are several aspects to consider when selecting a name for your business.
Legalities
As mandated by the South Dakota Secretary of State, all limited partnerships must include “limited partnership” in the name. The abbreviations “L.P.” or “LP” are also permitted. You cannot have any words that refer to other business types (like “corporation” or “incorporated”). You also can’t use words that refer to specific kinds of businesses (like “bank” or “doctor’s office”).
Naming
Use language that explains what your business does. For example, if you’re a lawyer, use the phrase “law firm” in your LP name. If your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
Do You Like the Name?
Choose a name that makes you proud. Make sure your limited partnership’s name sounds good when spoken aloud and looks good when written down.
The most crucial consideration for naming an LP is not to get too attached to any business name until you have reserved the name with the state of South Dakota or you’ve officially formed your business.
To reserve a name in South Dakota, check the name availability with the Business Name Search Tool. After you have confirmed that another business entity is not using your name, you may reserve it by completing the Application for Reservation of Name document and submitting it to the South Dakota Secretary of State.
How Do I Get My Business Domain?
To fully embrace your business name, register your URL. Online domain services can help you quickly build a company website so nobody else can use or take it.
What Benefits Does South Dakota Give to a Limited Partnership?
Limited partnerships have specific benefits. First, an LP does not have to pay income taxes, although it may report its profits and losses. Instead, its income passes through to its partners (who must report it to the IRS and pay taxes).
And, if you are a limited partner, you may not be personally liable for the business’s debts and other financial obligations. As long as a limited partner does not take an active role in the partnership’s management, your assets cannot be collected to satisfy the LP’s debts.
What Disadvantages Does South Dakota Give to a Limited Partnership?
General partners are personally liable for the business’s debts and other obligations (such as legal judgments). A general partner’s assets can be seized to collect a debt or judgment against the LP. If you form a limited partnership, general partners should consider purchasing liability insurance to help offset this risk.
Alternatively, you can consider creating a limited liability partnership (LLP). All partners have limited liability protections in an LLP, but different rules and procedures apply to LLPs in South Dakota. A business lawyer can help you decide which structure is best for you.
Should I Hire a Lawyer?
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 Dakota corporate lawyer can help you follow the correct procedures and protect your limited partnership.
