Do you want to form a limited partnership (LP) in North Dakota, 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 North Dakota.
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 Dakota, 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 Dakota state government, and there is also a formation fee involved.
Whereas the state of North Dakota 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:
North Dakota limited partnerships are required to contain either the words “limited partnership” or some other abbreviation. The acceptable abbreviations include “LP” or “L.P.” 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 Dakota, or you’ve officially formed your business.
Limited partnerships in North Dakota wishing to reserve a name may do so by using the North Dakota’s business database to search for an available name. Afterwards, you may claim the name by filing a Reserve name Application document with the Secretary of State. The document can be found here along with the state’s other LP forms.
Every limited partnership in North Dakota 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 Dakota Secretary of State,
An entity registered with the Secretary of State must continuously maintain a commercial or noncommercial registered agent and address in North Dakota. An entity cannot serve itself as registered agent.”
Without a registered agent in North Dakota, 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 requires the drafting and filing of a Certificate of Limited Partnership. The certificate must be filed with the North Dakota Secretary of State and should include the following information:
The North Dakota Secretary of State issues no specific version of the Certificate of Limited Partnership; those wishing to submit the document must draft it themselves. For more information on Limited Partnerships and how to form them, visit the Limited Partnerships section of the North Dakota Secretary of State website.
Cost to Form an LP: The state of North Dakota charges a filing fee of $40 to form a limited partnership.
Processing Time: The North Dakota Secretary of State states no listed processing time for the Certificate of Limited Partnership document. For more specific information regarding the application process and how to contact the Secretary of State to inquire about processing times, you may visit the Limited Partnership section of the North Dakota Secretary of State website.
While not legally required by the state of North Dakota, 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 North Dakota, most of your state level taxes will depend largely on what services or goods your business offers.
Limited partnerships that buy or sell goods will likely be required to pay both sales and use tax. More information of sales and use tax as well as directions on how to register for them can be found here on North Dakota’s tax webpage.
Depending on the nature of your business, you may also need to pay alcohol tax, motor fuel tax, and income tax withholding. Most of these taxes (as well as information on who they apply to) can be found here on North Dakota’s business tax e-file page.
Depending on where in North Dakota your business is located, you may also need to pay local taxes.
Some jurisdictions have their own location-specific sales and use taxes or industry-specific taxes that vary depending on the location of the business. To discover which local taxes you may be liable for, consult North Dakota’s guide to local taxation and the North Dakota Tax commissioner.
Not all limited partnerships in North Dakota will require it, but some will have licensing needs depending on the business type.
Most state-level permits are industry specific. You can browse a full list of North Dakota business licenses here. Most are issued either by the Secretary of State or the Attorney General.
For additional help defining your business license requirements, you’ll want to consult the Licensing Information section of the North Dakota website. Additional resources can be found on the North Dakota’s New Business Website.
In addition to any state-level licensing, you’ll also want to check with your municipality website and make sure you are abiding by all local license and permit 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.
In some cases, your North Dakota business may be required to carry certain types of insurance. For example, if you have any number of employees, you may be subject to carrying both unemployment insurance and workers’ compensation insurance. More information on these types of insurance can be found in North Dakota’s Employer Guide to Unemployment Insurance as well as on the North Dakota Workforce Safety & Insurance website. 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.
All North Dakota limited partnerships are required to file an annual report with the Secretary of State. The document must be filed on or before April 1 of each year after the formation of the partnership. Filing the document requires a $25 filing fee. More information on what must be included in the annual report can be found on North Dakota’s Secretary of State website.
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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