Do you want to form a limited partnership (LP) in Minnesota, 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 Minnesota.
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 Minnesota, 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 Minnesota state government, and there is also a formation fee involved.
Whereas the state of Minnesota 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:
Minnesota limited partnerships are required by law to contain the phrase “limited partnership” or the abbreviation”L.P.” or “LP” in the business name. 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 Minnesota, or you’ve officially formed your business.
If you’ve selected an available name and you’re ready to reserve it with the Minnesota Secretary of State, you can do so by filing the Name Reservation document. After filing the document, your business name will be reserved for a period of 12 months.
Every limited partnership in Minnesota 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 Minnesota Secretary of State,
If designating a registered agent, it must be a person residing in Minnesota, a Minnesota entity, or foreign entity authorized to do business in this state.”
Without a registered agent in Minnesota, 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.
In order to establish your business, you’ll need to complete a document referred to as the Certificate of Limited Partnership. To fill it out, you’ll need the following details:
To complete the Certificate of Limited Partnership, you may find it here as a PDF and submit it either online or by mail to the Minnesota Secretary of State.
Cost to Form an LP: The state of Minnesota charges a filing fee of $100 to form a limited partnership.
Processing Time: The Minnesota Secretary of State lists no standard processing time, but you may choose to expedite the document’s processing for an additional $20 submission fee.
While not legally required by the state of Minnesota, 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.
Although limited partnerships are pass-through entities that are not required to pay business income tax to the state of Minnesota, they are required to pay a minimum fee if its property, payroll and sales totals $500,000 or more.
Apart from the minimum fee, other state-level taxes may also apply to your limited partnership. For example, if your business makes taxable retail sales or provides taxable services within the state, it will likely be required to pay both sales and use tax. Limited partnerships that have employees will also be required to pay FICA tax and other employer withholding taxes.
More information on Minnesota state-level taxes and whether or not they apply to your limited partnership can be easily accessed through Minnesota’s Employment and Economic Development Business Tax Liabilities Page.
Depending on where in Minnesota your business is located, you may also need to pay local taxes.
Property taxes and some types of sales and use taxes are often specific to the town or county in which your Minnesota limited partnership is located. In addition to meeting all state-level tax requirements, you’ll also need to reach out to the tax office of your local government and confirm you’re paying all the town and county taxes which apply to your business.
In Minnesota, there is no general business license that will put your limited partnership in good standing to operate lawfully within the state. Instead, there are several other regulatory and professional licenses you may be required to obtain.
The state of Minnesota issues many licenses which depend largely on the business type and the nature of the goods or services it sells. Thankfully, the state’s Elicensing Platform contains a list of state-issued licenses organized alphabetically by topic and agency so that you can determine your limited partnership’s requirements without much hassle.
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 Minnesota limited partnership has any number of employees it is likely that you will need to pay for both unemployment insurance and workers’ compensation insurance. To pay unemployment insurance, you’re required to create an account using the state’s Employer and Agents Self-Service System. Similarly, information on workers’ compensation insurance and how to acquire it can be found on the Employer’s Resource Center of the Department of Labor and Industry. 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.
In order to keep your Minnesota limited partnership in good standing, it’s required that you file an Annual Renewal. This can be done by creating an account with the Minnesota Secretary of State and selecting the option “File Renewal” from the Business Record Details Page. The document may also be completed here as a PDF and mailed to the office of the Secretary of State.
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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