Do you want to form a limited partnership (LP) in New York, 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 York.
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 York, 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 York state government, and there is also a formation fee involved.
Whereas the state of New York 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 York, all limited partnerships are required to include the words “Limited Partnership” or the abbreviation “L.P.” in the 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”). For your convenience, the New York Department of State has compiled this list of prohibited words and phrases that are not allowed to appear in the name of your limited partnership.
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 York, or you’ve officially formed your business.
After selecting a desired name, you’ll need to check the name’s availability by submitting a written request to the Department of State using these guidelines. When you confirm that your intended name is available, you may reserve it by submitting an Application for Reservation of Name with the New York Department of State. This will reserve your name for 60 days.
Every limited partnership in New York 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 York Secretary of State,
Registered agents must be individuals who are residents of New York or a company (such as an LLC or corporation) that provides registered agent services. The registered agent must have a physical street address, should physical service of process be necessary.”
Without a registered agent in New York, 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 entail the completion and submission of the Certificate of Limited Partnership form. The document will require the following details:
A printable version of the Certificate of Limited Partnership can be found here. After completion, it should be sent (along with the filing fee) to the Department of State’s Corporations Division.
Cost to Form an LP: The state of New York charges a filing fee of $200 to form a limited partnership.
Processing Time: The New York Department of State lists no standard processing time for the Certificate of LImited Partnership document. If you need your documents processed quickly, you may choose to expedite your transaction for an additional fee.
While not legally required by the state of New York, 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.
The majority of New York state taxes are levied based on what goods or services your limited partnership provides.
Most LPs will be required to register and pay state and use tax, though other taxes and reporting requirements may also apply depending on the nature of your business.
For help determining which taxes apply to your limited partnership, you’ll want to visit the New York State Department of Taxation and Finance website. The website also has helpful resources that help determine which documents are necessary and information on how to e-file.
Depending on where in New York your business is located, you may also need to pay local taxes.
In New York, most taxes are handled at the state level. That being said, those in New York City may need to pay additional local taxes. In addition to the state income tax, the city of New York has an separate income tax that may also be necessary. Other taxes specific to New York City include the Metropolitan Commuter Transportation District surcharge and property tax on New York City real estate. For more information on local taxes within the city, visit the New York City Department of Finance website.
New York has no general business license but it does have over a thousand industry specific licenses which can be reviewed here. If sifting through them to determine which are applicable to your limited partnership seems overwhelming, the good news is that registering with the state’s Business Express system which will generate an individualized licensing checklist for your limited partnership.
You’ll also want to make sure you have any occupational permits necessary for running your LP. A full list of occupational permits (and further information on who needs them and how to obtain them) can be found here on New York’s Department of Labor website.
In addition to complying with licensing requirements at a state level, you’ll also want to ensure you have any local permits and licenses that may be necessary. For example, New York City has its own Step-By-Step Business Service which allows those operating businesses in the city limits to create a customized checklist for local licenses and permits. To be sure you comply with your county or city requirements, consult your local government’s web page.
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.
While most New York Limited Partnerships are not required by law to offer healthcare insurance to employees, Workers’ Compensation (WC) and Unemployment Insurance (UI) are mandated by law if you have any number of employees working for you. Workers’ Compensation in is available either through private insurance companies or the New York Insurance Department. For more information on WC, how it works, and where to get it, visit the New York Workers’ Compensation Board website. To obtain Unemployment Insurance, you’ll first need to establish a UI tax account with the New York Department of Labor. Employer registration can be done here by completing Form NYS-100. 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.
New York does not require Limited Partnerships to file an annual or biennial report.
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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