Do you want to form a limited partnership (LP) in Kansas, but you’re not familiar with the formation process?
A limited partnership can be a great alternative to a general partnership, but the LP is definitely more difficult to form compared to the more casual nature of the general partnership. In this guide, we’ll discuss all the crucial details of forming this business type in Kansas.
There are several significant differences between the general partnership and the limited partnership (LP), starting with the roles of the partners themselves. With a general partnership, the partners split profits evenly and take equal responsibility when it comes to liability ― general partners are personally liable for the company’s debts and settlements.
With a limited partnership (not to be confused with the LLC), there is at least one general partner and one limited partner, which is the term for a partner that 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 day-to-day operations of the company.
Another major difference is that the general partnership is not a formal business structure, which means you don’t even need to file formation documents with the state of Kansas, or pay any sort of formation fee. The general partnership is simply formed when the partners begin transacting business together.
On the other hand, a limited partnership does have a formal formation process with the Kansas state government, and there is also a formation fee involved.
Whereas the state of Kansas allows general partnerships to operate under the individual names of the partners, that is not the case for limited partnerships, which must have a distinct business name.
Your limited partnership’s name is often the first impression you get to make on potential customers, and therefore it goes without saying that this is an important step. There are a few different aspects to take into consideration when selecting a name for your business:
In Kansas, all limited partnership names are required to contain the words “Limited Partnership” or the abbreviation “LP” or “L.P.” In addition, you cannot include any words that refer to other business types (like “corporation” or “incorporated”), and you also can’t use words that are typically used to refer to specific kinds of businesses (like “bank” or “law office”).
Another aspect to consider is including language that explains what your business does ― for example, if you’re a realtor, put the phrase “real estate” in your LP name. Additionally, if your business has strong values like being environmentally friendly, you can indicate that by including the word “green.”
At the end of the day, this is your business, and you should choose a name that makes you proud. You should also make sure your limited partnership’s name both sounds good when spoken out loud, and looks good when written down.
The most important consideration for naming an LP is to not get too attached to any one business name until you have either reserved the name with the state of Kansas, or you’ve officially formed your business.
Kansas allows limited partnerships to reserve their name online through the Kansas Business Center. Before attempting to reserve the name, you’ll want to check its availability using Business Entity Search Station. After reserving the name, the state will hold its rights for 120 days.
Every limited partnership in Kansas is required to designate a registered agent, which is the individual or registered agent service that receives government correspondence on behalf of your business, then forwards those documents to you.
According to the Kansas Secretary of State,
A resident agent is authorized to accept service of lawsuits on behalf of a business entity. The registered office is a physical address in Kansas where the agent can be located for service of legal process.”
Without a registered agent in Kansas, you could lose your good standing and the state also has the right to dissolve your LP if they decide to. In a worst-case scenario, the state could fail to alert you regarding a lawsuit against your company, which could even lead to a judgment against your business because you didn’t defend yourself.
At the end of the day, we recommend designating a registered agent service to handle these requirements. Doing so will help eliminate junk mail and more importantly, keep your personal and/or business address off public record.
At this point, it’s time to legally form your new limited partnership.
Doing so requires the completion of a Certificate for a Kansas Limited Partnership. To fill out the form, you’ll need the following information:
Those wishing to prepare a Certificate for a Kansas Limited Partnership may either complete it as a PDF file and mail the document or complete the business formation process online using the Kansas Business Center system.
Cost to Form an LP: The state of Kansas charges a filing fee of $165 to form a limited partnership.
Processing Time: When filed by mail, the Kansas Secretary of State is generally able to process documents in two to three business days when all paperwork is completed correctly. Online filings are processed immediately.
While not legally required by the state of Kansas, a limited partnership agreement outlines some of the key operating principles of the business. Even though you don’t have to submit it to the state to form your LP, it’s still a vital document that describes the exact nature of the agreement between the general partners and limited partners.
The information included in a limited partnership agreement does vary depending on the nature of your business, the size of your company, and some other variables. In general, it’s good to get the following information down in writing:
Limited partnerships require a federal tax ID number, or EIN. An EIN is basically the business version of a social security number, and it’s used for a variety of important LP functions.
For instance, you’ll need an EIN if you want to hire any employees, and many banks require them to open business bank accounts as well. You’ll also need one for tax purposes, hence the name federal tax ID number. Get an EIN for your LP for free through the IRS.
In Kansas, most state-level taxes that will apply to your limited partnership are levied based on what goods or services your business entity offers.
For example, businesses which sell liquor or tobacco will be required to pay corresponding liquor or tobacco taxes. Commonly, businesses which sell taxable goods within the state will be required to pay sales and use tax.
While sorting out your limited partnership’s tax liabilities may seem difficult, Kansas offers many resources to help. One of which is the Division of Taxation’s Business Taxation Page. Further assistance with state taxing (and instructions on how to register and file online) can be found through the Kansas Business Center.
Depending on where in Kansas your business is located, you may also need to pay local taxes.
Some municipalities have their own local tax requirements. To ensure you’re meeting all state and local requirements, check with your local tax office regarding your city or county tax standards.
While Kansas has no general business license that will fully authorize your limited partnership to operate lawfully in the state, it does have many other industry-specific and occupational licenses which may apply to your business.
Depending on the nature of your limited partnership, it’s likely that you’ll need to apply for one (or several) of the licenses on this list of common business licenses and permits. Special licensing requirements apply to businesses operating in beer brewing, motor vehicle rentals, retail sales, cosmetology, and many other industries. Often, you can meet your local regulatory licensing needs online by creating an account with the Kansas Business Center system.
If you would rather have a professional take care of your formation paperwork for you, you have a couple of options. The less expensive choice is to hire a business formation service to create your limited partnership.
While some service providers stick to less complicated business entities like limited liability companies, some also provide LP formations ― namely, LegalZoom and BizFilings. Currently ZenBusiness does not have this offering but does have regular LLC formation and business incorporation.
If you want the maximum possible degree of expertise, you should also consider hiring a business attorney to form your limited partnership. This is certainly a more expensive route, but if you want the peace of mind that every step is completed correctly ― and that all of your options have been thoroughly explored ― hiring a lawyer is a great option.
We highly recommend that you establish a business bank account so that your business and personal finances are maintained separately. This is important because it helps protect your personal assets, and also makes filing taxes much easier. Once you receive your EIN from the IRS, you’ll be able to use it to establish an account at the bank or credit union of your choice.
If your Kansas limited partnership has employees, you’ll likely be required to carry a couple different types of employer insurance. For example, businesses that have a gross annual payroll of more than $20,000 are required to carry workers’ compensation insurance which can be obtained through the Kansas Department of Labor. In most cases, Kansas businesses with employees are also required to pay for unemployment insurance. More information on the state’s unemployment insurance policies can be found in the state’s Unemployment Insurance Employer Handbook or through the Kansas State website. After you obtain these legally required policies, it’s probably also a good idea to pursue general liability insurance, as well as some industry-specific policies.
Limited partnerships do not file business tax returns. Instead, the income is passed through the business entity to the partners, who then claim their share of profits or losses on their personal tax returns. Still, LPs do need to file an annual information return with the IRS, in which you report your business income, deductions, gains, and losses for the year.
Kansas requires all limited partnerships established in the state to file an annual report. The report’s due date is determined by the business’s tax closing month and costs $55 to submit. Those wishing to file online may do so through the Kansas Business Center system.
We don’t recommend that you attempt to manage your business finances without the help of a professional. There is too much room for error, and a professional can ultimately save you time and money by guiding you on how to manage your business finances. At a minimum, enlist professional help to set you up with software and the steps for keeping up with your finances on a regular basis. Then, consult back with your accountant at least a couple of times per year – and especially at tax time – to ensure you’re keeping track of everything correctly.
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