Do you want to form a limited partnership (LP) in Montana, 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 Montana.
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 Montana, 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 Montana state government, and there is also a formation fee involved.
Whereas the state of Montana 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 Montana, names of limited partnerships are required to identify themselves as such in their name. Each limited partnership business name, according to Montana law, is required to include either “Limited Partnership,” “L.P.”, or “LP” in the business title. 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 Montana, or you’ve officially formed your business.
If you’ve started considering a name, you’ll need to type it into Montana’s business search tool in order to make sure it does not yet belong to a pre-existing business entity. If the name is the same (or too similar) to that of an established company, you may not use it. After you’ve found an available name, you may choose to reserve it for up to 120 days by filling out the Reservation of Name document on Montana’s business filing platform.
Every limited partnership in Montana 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 Montana Secretary of State,
An entity registered with the Secretary of State as a registered agent must maintain an active good standing status and an address within the State of Montana whether as a Commercial or Noncommercial Registered Agent. A business entity cannot serve as its own registered agent.”
Without a registered agent in Montana, 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.
Creating an LP in Montana requires the completion and submission of a document called the Certificate of Limited Partnership. The document can be filed online with ePass Montana, a secure way to access the state’s government services, or it may be completed as a PDF here, printed and sent via certified mail. The document will require some of the following information:
Cost to Form an LP: The state of Montana charges a filing fee of $20 to form a limited partnership.
Processing Time: Process time varies depending on time of year and other factors. Should you decide to expedite the processing, you may choose a 24 hour turnover for an additional $20 or 1 hour expedited handling for an additional $100.
While not legally required by the state of Montana, 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.
On a state level in Montana, limited partnerships are taxed through the personal income of the partners rather than through a corporate income tax.
Many states require a privilege or franchise tax, but Montana does not. This means that generally speaking, Montana LPs will not be required to pay a state tax on either its income or its net worth. Instead, the income a partner earns through the LP will be taxed when they submit their individual tax return (which can be done online through Montana’s E-filing options). However, each year the LP must also file an informational return with the Montana Department of Revenue.
Though specific state tax percentages vary, it’s worth noting for comparison that in recent years Montana has taxed personal income at percentages ranging from between 1% and 6.9%.
Depending on where in Montana your business is located, you may also need to pay local taxes.
In Montana, there are no local taxes outside of the resort tax that is applicable in high-traffic tourist destinations such as Whitefish, Red Lodge, Big Sky, West Yellowstone and others.
Though there is no state sales tax, hotels, restaurants, fast food stores, taverns, destination resorts, and recreational facilities are all subjected to a resort tax which is payable to the Montana Department of Transportation and Land Use. For a full list of the affected areas and their tax rates, click here to visit the Montana Department of Revenue.
In the state of Montana, there is no general business license that covers all entity types. Depending on your LPs location and what it sells/offers, you may need to apply for certain specified licensing.
For any location-specific licensing which are determined by the city/county in which your Montana LP operates in, you’ll need to reach out to the Montana Association of Counties either online or by phone at (406) 449-4360.
Industry-specific licenses may also be necessary for LPs operating in the fields of construction, independent contracting, plumbing, electrical, agriculture, the sale of alcohol or tobacco, and many others. For a full list of Montana licenses, registrations and certifications, check the Montana state license page of the Montana Department of Revenue website.
In many cases, you may be able to renew and update all of your LPs licensing by using Montana’s business licensing service E-Stop.
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 Montana LP has any employees, it will be required by law to pay for unemployment insurance (UI) which helps protect employees in the event that the employment comes to an unforeseen end. To acquire UI, the Montana business will need to establish a Montana UI tax account by visiting the Montana Department of Labor & Industry’s website and registering with the UI eServices for Employers. More information on unemployment insurance and how to obtain a Montana UI tax account, visit the Montana Department of Labor & Industry’s webpage. 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 Montana, Limited Partnerships are required to file an annual report with the Secretary of State. This can be done easily online by first searching the business name through the state’s e-filing platform. Annual reports are due on the 15th of April for all business entities, and require the payment of a $20 filing fee. Should you file your report late, you may be required to pay more. For Montana’s complete instructions on filing an annual report, you may view Montana’s guide to business entity annual reports.
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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