Limited partnerships definitely have advantages, but they are also so complex that starting a limited partnership requires a lot of paperwork that should be completed by an attorney. They can be unequal partnerships that give some partners far more responsibility and ownership than others. In fact, this disparity is what distinguishes limited partnerships from general partnerships.
Limited partnerships are more complicated than general partnerships. Owner-partners are classified in two ways:
- General partners manage the business and are personally responsible for its debts.
- Limited partners contribute capital, share profits, and do not participate in management of the business. They are not responsible for debts of the firm.
Limited partners are like shareholders of a corporation because they aren’t liable for debts, which make it easier for general partners to attract them to invest.
Limited Partnerships and Taxes
A limited partnership does not pay income taxes, but its partners do. Its income is instead imputed to its partners, who report their respective shares of the partnership’s income on their individual tax returns and are responsible for income taxes on that income.
Examples of Limited Partnerships
One derivation of limited partnerships is the limited liability partnership. Many professional services businesses, such as law firms and accounting firms, are formed as limited liability partnerships. One advantage of this entity is that the partners are not usually personally responsible for the liabilities of the business, even if they participate in management of the business like a general partner in a limited partnership.
Getting Started in Forming a Limited Partnership
Although you will need a partnership agreement and should get a lawyer to help you write that document, you can get started in forming the entity by completing and filing a Certificate of Limited Partnership. The Arizona Secretary of State’s office charges a filing fee of $10 plus $3 for each page. Other fees are listed on the office’s website.
The state accepts limited partnership forms at its office in person on weekdays from 8 a.m. to 5 p.m. The office is on the first floor of the Executive Tower of the State Capitol at 1700 W. Washington, between Jefferson and Adams. You can also mail the form to:Secretary of State Attention: Limited Partnerships 1700 W. Washington Street, 7th Floor Phoenix, AZ 85007 The Secretary of State’s office also answers on its website’s FAQs. Photo Credit: Caitlin Childs