A partnership is an association of two or more persons intending to carry on as co-owners of a business for profit. A partnership is formed when the parties to the business have equal ability to share profits and the right to control the business. Those parties will then be said to be partners. If all partners have equal rights to control the business and benefit from the money it makes, then they have formed a “general partnership.”
One of the riskier facts facing general partners is that just as they benefit from the profits, they share equally in the company’s debts. And if the company ever gets sued, the general partners are each equally liable for any damages award that the court makes. If the plaintiff in a lawsuit against the partnership wins more money than the partnership has, the general partners must take money out of their personal funds to pay the plaintiff, even to the point of selling their homes or cars.
Another way to structure a business is to form a limited partnership (LP). (Other business structures include limited liability companies (LLCs) and corporations.) An LP comprises two distinct types of partners: limited and general.
Limited partners usually only provide money and act as silent investors. In exchange for their lack of involvement, limited partners enjoy limited liability for the company’s actions. If the company gets sued or has excess debt, limited partners can only lose the amount of money they invested in the business, unlike the general partner(s) who are in charge of actually running the LP and are personally liable for the LP.’s debts and legal actions.
Limited partnerships are an appealing way for a partnership to raise capital. The limited partners are usually investors with no particular interest in the business operations. Instead, typically they are investors seeking investment opportunities with the hope of earning a meaningful return on their investment in a successful venture.
What are the Requirements for Forming an LP in Utah?
Utah has several requirements for a company to satisfy if it wishes to be formed as an LP:
- The LP needs to have at least one general partner and one limited partner.
- The name of the LP must include the term “limited partnership” or the abbreviation “L.P.” or “LP.”
- The partnership must appoint a registered agent who can be served on behalf of the business. Only Utah residents over the age of 18, corporations that are registered to do business in Utah, and LLCs registered to do business in Utah are allowed to serve as registered agents for an LP.
- The LP must be registered with the Utah Department of Commerce, Division of Corporations and Commercial Code.
What Paperwork Do I Need to Form a Utah LP?
To successfully register your LP, you have to fill out certain paperwork. Once completed, the documents can be submitted online or by filling out the form and sending two copies to the Utah Department of Commerce Division of Corporations and Commercial Code through mail, email, fax, or in person.
To register a domestic LP, you must complete a Certificate of Limited Partnership. This form will require you to state the LP’s name and principal place of business, the names and addresses of the general partner(s) (but not the limited partners), and the name and address of the registered agent. All general partners have to sign the Certificate and the person filling out the paperwork. You can include the purpose of the LP, although you are not required to do this.
On the other hand, if you are looking to register a foreign LP, you must fill out a Foreign Registration Statement (Limited Partnership) form. Although the form has the same basic requirements as the Certificate of Limited Partnership, you need to provide more information. The additional information you will need to provide includes any other names the company has used and the jurisdiction where the LP was originally formed.
The filing requirements and paperwork can sometimes be intensive for limited partnerships in Utah. It may be necessary to work closely with a legal professional who can help ensure that all requirements are met and filed in the appropriate time frame.
Partnership Agreement
In addition to external filings, the partners of the limited partnership must draft a partnership agreement. This document is an internal document that defines how the business will be operated. This agreement outlines the rights, responsibilities, and expectations of each partner.
The partnership agreement should identify two key financial aspects of the company. First, the agreement should identify how profits and losses will be shared, including how profits will be distributed to the general and limited partners. Second, the agreement should identify the process for when a partner wants to sell their stake in the partnership. This may include expectations that the departing partner will give notice at least two weeks’ notice or that the other partners have the right of first refusal.
The partnership agreement need not be filed with any governmental authority, but this does not mean it can be skipped. The partnership agreement is the only thing that formally explains the roles of the general and limited partners. The limited partners must have this in writing – it protects them from responsibility for the partnership’s liabilities.
What Benefits Does Utah Extend to LPs?
Private entities and local governments have set up business incubators and resource centers throughout Utah. These are designed to help new and growing LPs flourish. For instance, the BioInnovations Gateway provides life science companies with considerable equipment and workspaces. Another center is the Eagle Mountain Incubator & Business Resource Center, which offers business counseling, office space, and other valuable resources.
Another benefit associated with LPs, in general, is that they typically will not dissolve if a limited partner withdraws from the organization. This is because limited partners generally do not take part in the leadership or management aspects of the partnership. This can allow for different adaptations and adjustments to be made in the long run without totally disrupting the business operations and without needing to form a new partnership every time one of the limited partners leaves.
What Types of Disadvantages Do Utah LPs Face?
Utah requires that LPs renew their business annually for a fee of $15, with an additional $10 for late filings. This is important because if you do not renew your LP, the LP will be automatically dissolved by the state.
Unlike other states that are more lax about a limited partner’s involvement, Utah is quite strict on prohibiting limited partners from managing the business. If a limited partner becomes involved in the management of the LP, they will lose their limited partner status. That makes them equally responsible for the company’s debts as the general partner(s).
Should I Hire a Business Lawyer to Help with Creating an LP in Utah?
Consulting with a Utah corporate lawyer when forming a limited partnership is important. A business lawyer in your area can help ensure your LP is set up properly per Utah law. In addition, your attorney can provide legal representation in the event of a lawsuit.
