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 North Carolina, 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 North Carolina state government, and there is also a formation fee involved.
Whereas the state of North Carolina 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, there are some specific requirements when it comes to selecting a name for your Limited Partnership. Each New York LP is required to contain the words “Limited Partnership,” or the abbreviation “L.P.” or “LP”. The combination form “Ltd. Partnership” is also acceptable. 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 North Carolina, or you’ve officially formed your business.
Before you try to claim a name, you will first need to check its availability using North Carolina’s statewide name search database. Then, you may reserve the name by filing an Application to Reserve a Business Entity Name with the North Carolina Secretary of State. The document can be found here among the other business formation documents. This reserves the name for an 120-day period.
Every limited partnership in North Carolina 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 North Carolina Secretary of State,
a registered agent may be any one of the following: an individual who resides in North Carolina and whose business address is identical to the registered office; a domestic business corporation, nonprofit corporation, limited liability company, whose business address is identical to the registered office; or a foreign business corporation, nonprofit corporation, limited liability company authorized to transact business in this state and whose business address is identical to the registered office.“
Without a registered agent in North Carolina, 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.
Establishing a new LP will require the filing of a document called the Certificate of Domestic Limited Partnership. It is a fairly straightforward two-page form that includes comprehensive instructions for completion. To fill it in, you’ll need the following information:
You can find a PDF version of the Certificate of Domestic Limited Partnership in the list of documents located here. After completion, it must be printed and mailed to the Business Registration Division of the North Carolina Secretary of State.
Cost to Form an LP: The state of North Carolina charges a filing fee of $50 to form a limited partnership.
Processing Time: The North Carolina Secretary of State provides no concise details on document processing times. Should you require information on your certificate’s turnover time, you may choose to contact the Business Registration Division of the North Carolina Secretary of State.
While not legally required by the state of North Carolina, 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.
Most state-issued limited partnership taxes are industry specific and depend on the nature of your business and what products or services it supplies. One of the most common state-issued taxes that limited partnerships are responsible for is sales and use taxes. For information on sales and use tax as well as details on how to register for and pay it, visit the North Carolina Department of Revenue.
If you have employees, it’s likely you will also be responsible for employer’s withholding taxes as well as other industry-specific taxes. To discover which taxes your business may be liable for and find instructions on how to file them, you’ll want to create an account with North Carolina’s e-Business Center. More information on partnership taxes in general is also available from the North Carolina Department of Revenue’s Partnership Tax page.
Depending on where in North Carolina your business is located, you may also need to pay local taxes.
Local taxes are specific to the county or city in which the limited partnership is located. To find out whether your municipality has any additional taxing requirements outside of the state taxes, you’ll need to consult the website of the county clerk or local government office. A full list of North Carolina counties along with their websites and contact information may be found here.
There is no general business license in North Carolina but your limited partnership may require several licenses and permits on both a state and local level.
State-issued licenses include occupational licensing and industry-specific licenses. If you’re unsure whether you will require an occupational license, you may want to try using North Carolina’s occupational license search tool.
To determine industry-specific licensing, you’ll want to consult North Carolina’s Business and Permits page, which has further information on how to register for various licenses and who they apply to.
In addition to state-issued licenses, some municipalities have location-specific permit and licensing requirements. To be sure you know all of your limited partnership license responsibilities on a local level, you’ll want to contact your local government office.
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.
Most North Carolina employers are required to carry several types of insurance. While your business is not required to off health insurance coverage to employees, most Limited Partnerships with any number of employees will be required to pay both unemployment insurance as well as workers’ compensation insurance. For more information on these insurance types and how they can be paid, visit the North Carolina Division of Employment Security and North Carolina Industrial Commission web pages. 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 North Carolina, corporations and LLCs are required to file annual reports but limited partnerships are exempt.
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.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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