Limited partnerships (LP), limited liability companies (LLC), and corporations are all different business structures. One important advantage of the LP form for doing business is the fact that they allow for pass-through taxation. This means that the partnership’s income is only taxed when it is distributed to the partners.; it is not taxed separately to the partnership before it is distributed. The structure also allows for limited liability for the limited partners. In addition to limited liability, limited partners do not have managerial responsibility for the partnership.
Since limited partners have limited liability, each limited partner is only responsible for any liability up to the amount of money they contribute to the LP. However, the limited partners allow the general partners to have managerial control over the LP in order to qualify for limited liability. Wisconsin businesses that want to have an LP structure have to be registered as such with the Wisconsin Department of Financial Institutions.
This is how an LP works differently than a general partnership. In a general partnership, general partners are personally and wholly liable for the company’s debts and settlements. There are no shields for personal liability.
Another important difference is that a general partnership is not a formal business structure. Partners in a general partnership do not need to file formation documents with the state of Wisconsin or pay any kind of formation fee. The general partnership is considered to have been formed when the partners begin transacting business together. An LP does have to complete a formal formation process with the Wisconsin state government, and a formation fee must be paid to the state.
What are Some Requirements for Forming an LP in Wisconsin?
In Wisconsin an LP’s name must include the designators “L.P.”, “LP”, or “limited partnership.” In addition, Wisconsin law requires that an LP have the following:
- At least one general partner and one limited partner;
- A registered agent who lives or is authorized to do business in Wisconsin;
- An office where a number of important documents, such as a list of the limited partners and their addresses, are housed.
What Paperwork Do I Need to Form an LP in the State of Wisconsin?
A business needs to file paperwork with the Wisconsin Department of Financial Institutions in order to register as an LP in the state of Wisconsin. Domestic LPs will be required to file a Certificate of Domestic Limited Partnership as well.
The form requires the reporting of the name of the LP, the address of the office where the LP will maintain its records, and the date the LP will end. The partnership is also required to state the name and address of the registered agent for service of process and for receiving official communications on behalf of the LP, such as annual report forms, tax forms, and the like.
The registered agent could be a partner or employee of the partnership, or someone not directly involved in its affairs, such as an attorney. It is important to keep the registered agent and registered office information current in state records, as significant consequences could follow from the failure to receive and act on important papers sent to the partnership’s registered agent. The physical address of the business office of the LP’s registered agent is the LP’s “registered office.”
All of the general partners must provide their names and addresses as well. And, finally, the signature of each general partner must appear on the form.
Foreign LPs must file a Foreign Limited Partnership Application. This form must report the foreign LP’s name, any other name that the LP intends to use in conducting its business, where and when the LP was created, and the name and address of the registered agent. The foreign partnership will also be required to provide the address of either the principal office or the office where the LP’s records are maintained. All of the general partners are required to both sign and provide their name and address on the form.
An LP needs to reserve a name, but before doing that, it should check to see if a desired name is available. A business name can be checked through the Wisconsin Department of Financial Institution’s “Search Business Records” service. After confirming that a name is available, the name can be claimed by filing a Name Reservation Application.
The paperwork requirements for establishing an LP in the state of Wisconsin can sometimes get complicated. It is highly recommended that the representatives of an LP work with a Wisconsin business lawyer who can help ensure that all the documents and required items are properly completed and submitted in a timely manner.
What Benefits Does Wisconsin Give to LPs?
Wisconsin offers several tax exemptions and credits that could prove to make it advantageous to start an LP in the state. At least 25% of all new companies in the state of Wisconsin qualify for early investment tax credits. Also, money that constitutes capital gains that is invested in qualified businesses are not subject to capital gains taxation if the investment has been held without interruption for 5 years.
Another difference between limited partnerships and more traditional business partnerships is in the way in which they are terminated. In other types of partnership structures, the business may be subject to dissolution if a general partner withdraws, retires, or dies. By comparison, a limited partnership will usually not have to dissolve if a limited partner withdraws or retires. This can allow for more flexibility and adaptability for the organization in the long run.
What Disadvantages Should Wisconsin LPs Consider?
Wisconsin has one of the higher individual income tax rates in the country. It can range as high as 7.65%. Since LP partners are required to pay income tax on the income that they receive from the LP, it may be more expensive for the limited partners to receive partnership income in Wisconsin than in another state due to this relatively high tax on partnership income.
Also, LPs that have at least one nonresident partner must withhold and pay the nonresident partner’s income tax to the state or the partner, unless the LP’s profits are less than $25,000 or the nonresident partner is otherwise exempt from the income tax.
LPs can still have other disadvantages in addition to the income tax issue. For instance, although the business will not have to dissolve if a limited partner concludes their participation in the company, these types of situations can still lead to certain legal issues or disputes.
Other issues might involve specific provisions of the partnership agreement or contract. Thus, it is probably wise to have any partnership agreement or contract reviewed, if not drafted, by an experienced business lawyer in order to make sure it reflects the understanding of each party as to their rights and responsibilities with regard to the partnership.
Do I Need a Lawyer for Help Forming a Limited Partnership in Wisconsin?
When creating an LP, you will want to ensure you are filling out all of the paperwork properly and meeting all of the legal requirements of the state of Wisconsin. The best way to do this is to hire a Wisconsin corporate lawyer.
Your attorney can provide you with legal advice for any questions you may have and is the best qualified to draft a solid partnership agreement and make sure all state requirements for formation are fulfilled. You are most likely to get the best possible start for your business inception if you have an experienced Wisconsin business lawyer working with you.
