Do you want to form a limited partnership (LP) in New Jersey, 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 New Jersey.
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 New Jersey, 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 New Jersey state government, and there is also a formation fee involved.
Whereas the state of New Jersey 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 New Jersey, each business entity is required to include an indication of the entity type in the name. For example, all limited partnerships must have “LP,” “L.P.” or some other variation as the final word of 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 New Jersey, or you’ve officially formed your business.
The first step to claiming your DBA (sometimes referred to as an alternate name) is to check the name’s availability using the search tool and guidelines located here on the New Jersey state website. Once you’ve confirmed that your desired LP name is available, you may reserve it by filing the Registration of Alternate Name (form C-150G) with the New Jersey Division of Revenue.
Every limited partnership in New Jersey 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 New Jersey Secretary of State,
The registered agent may be any individual, over eighteen years of age, who agrees to serve as agent, or any business in good standing with the State of New Jersey that agrees to serve as agent. Only one name may be listed for the registered agent.“
Without a registered agent in New Jersey, 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 will require the filing of the certificate of formation designated for LPs. The document will require the following information:
The appropriate Certificate of Formation for limited partnerships may be filed online through the Division of Revenue using the information included here.
Cost to Form an LP: The state of New Jersey charges a filing fee of $125 to form a limited partnership.
Processing Time: The processing time for online filings is 3 to 10 business days after the successful completion of the online transaction. However, a printable filing certificate will be available for printing as soon as the digital application is successfully processed.
While not legally required by the state of New Jersey, 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 the state of New Jersey, state-level taxes are levied based on the nature of your business, if it has employees, and where it is located. The two most common state taxes that New Jersey LPs are required to pay include state and use tax. To learn more about state and use tax and whether your LP is subject to it, you’ll need to consult the “State and Use Tax” section of the New Jersey Department of Taxations which can be located conveniently here.
In addition to these taxes, industry-specific taxes may also be required. Thankfully, New Jersey makes it simple to discover which taxes apply to your business. To determine which taxes are necessary and pay them, you’ll be required to complete Form NJ-REG in the Business Registration Packer which can be completed either online or downloaded here as a print form.
After you’ve registered, the business will be given instructions for ongoing compliance with New Jersey State taxes, making it easy to understand which taxes you must pay on behalf of your LP.
Depending on where in New Jersey your business is located, you may also need to pay local taxes.
Depending on where in New Jersey your business is located, you may have to pay different/additional taxes. While sales tax is state-wide in New Jersey, the specified rate of the tax may differ depending on your zone. Additionally, local sales taxes are imposed on certain items sold in Atlantic City and Cape May County. The New Jersey Department has created the New Jersey Sales Tax Guide for those wishing to enquire about location-specific sales tax rates.
Additionally, if your limited partnership owns property, it will be subjected to local property taxes. Country-specific rates for local property taxes can be reviewed here on the state’s Department of Treasury website.
Which licensing your limited partnership requires will come down to the nature of your business and where it is located. Industry, professional, and local licensing requirements should all be taken into consideration.
Each New Jersey municipality has its own requirements regarding general business licenses and other permits. To be sure you are complying by your county/town regulations, you’ll want to identify your county government using this municipality search page and contact them regarding requirements.
On a statewide level, you’ll need to make sure your New Jersey limited partnership complies with all industry and professional requirements. For more information, consult the NJ License and Certification Guide. You may also choose to review the Licenses & Permits page of the NJ business portal in order to determine specific requirements.
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.
All New Jersey limited partnerships which have one or more employees are required by law to have unemployment insurance, disability insurance, workers’ compensation insurance, and employer liabiltiy insurance. Employee life and health insurance policies are optional. For more information on employer insurance and responsibilities, you may choose to visit the Employer Responsibilities portion of the State of New Jersey’s Business Portal. 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.
To remain in good standing, New Jersey limited partnerships are required by law to file an annual report. The New Jersey Department of State encourages users to file online using the Division of Revenue and Enterprise Service’s filing system. Reports are due in the anniversary month of their established date in New Jersey and require a $50 filing fee. Failure to file on time will incur a substantial fee.
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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