Do you want to form a limited partnership (LP) in Pennsylvania, 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 Pennsylvania.
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 Pennsylvania, 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 Pennsylvania state government, and there is also a formation fee involved.
Whereas the state of Pennsylvania 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:
Unlike most other states, Pennsylvania does not require limited partnerships to have a name containing a word or abbreviation which indicates it is a limited partnership. Some may choose to include the words “limited partnership” or some equivalent abbreviation such as “LP” or “Ltd.” but it is not required. 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 Pennsylvania, or you’ve officially formed your business.
Before registering or reserving your business name, you must first check its availability by searching the desired name on the Pennsylvania Business Name Search. Once it has been confirmed that the intended name is not already in use, you may reserve it by filing a Reservation of Name/Transfer of Reservation document with the Pennsylvania Department of State, either as a PDF file or online using Penn File.
Every limited partnership in Pennsylvania 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 Pennsylvania Secretary of State,
Service of Process may be sent to the registered address of the entity that appears on our records. The Secretary of the Commonwealth may accept service as ordered by a Pennsylvania judge. The court order accompanied by the complaint should be sent certified mail to the Department of State; return receipt requested. The statutory fee is $70 for each defendant to be served.”
Without a registered agent in Pennsylvania, 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 completion of the Certificate of Limited Partnership. The form is a relatively straightforward document consisting of a single page. To fill it out, you’ll need the following information:
The Certificate of Limited Partnership (as well as the directions for filing it) can be found here as a PDF document or completed online using Penn File.
Cost to Form an LP: The state of Pennsylvania charges a filing fee of $125 to form a limited partnership.
Processing Time: The Pennsylvania Department of State reports a 7 to 10 day standard delivery for the processing of most documents. However, you may choose to expedite your filing for an additional fee by completing the Expedite Service Request Form.
While not legally required by the state of Pennsylvania, 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 Pennsylvania state taxes are determined by the goods and services your business provides. Commonly limited partnerships will be required to pay sales and use tax. Other taxes which may apply to your business include employer withholding tax, hotel occupancy tax, and vehicle rental tax. You can register for these taxes and others by filing the PA-100 form with the Pennsylvania Department of Revenue.
Further information on Pennsylvania business taxation and what taxes may apply to you can be found by visiting the Business Tax Section of the Pennsylvania Department of Revenue.
Depending on where in Pennsylvania your business is located, you may also need to pay local taxes.
For example, Philadelphia and Pittsburgh both have their own local tax requirements. To get a full picture of your limited partnership tax liability, you’ll need to also be sure you’re meeting the local requirements of your town or city.
There is no general business license in Pennsylvania. Instead, your limited partnership will be required to seek out specific licenses and permits depending on what it sells or what services it offers.
Most licenses are industry-specific or occupational licenses. The majority of any necessary state-issued licenses are issued by the Pennsylvania Department of State, and can be researched and applied for using the Pennsylvania Licensing System.
In addition to state licensing requirements, you’ll also need to meet the local requirements of your city or town. For example, Philadelphia and Reading have their own local licenses and permits 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.
Many Pennsylvania businesses are required to carry general liability insurance which protects the business owners. Additionally, if you have any employees you will likely be required to pay both workers’ compensation insurance and unemployment insurance tax. Further information on workers’ compensation insurance and unemployment insurance can be found in the Pennsylvania Guide to Workers’ Compensation Insurance and the Office of Unemployment Compensation, respectively. In addition to the mandatory insurance requirements, you may also carry natural disaster insurance, home-based business insurance, and insurance for those using their personal automobile for business. More information on optional insurance types can be found on the Business Insurance Page of the Pennsylvania Insurance Department 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.
In contrast to most other states, Pennsylvania does not require its limited partnerships to file an annual 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.
Ready to Start Your LLC?