Do you want to form a limited partnership (LP) in Rhode Island, 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 Rhode Island.
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 Rhode Island, 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 Rhode Island state government, and there is also a formation fee involved.
Whereas the state of Rhode Island 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 Rhode Island, all limited partnerships must include the words “limited partnership” or include one of the allowable abbreviations “l.p.” or “lp”. 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 Rhode Island, or you’ve officially formed your business.
Before you attempt to claim a name, you’ll need to check the name’s availability with the RI Department of State Corporate Database. However, conducting the search does not guarantee the name will still be available upon filing. The name must also meet all name availability guidelines set forth by the state. When you’ve selected a desired name, you may claim it by filing a name reservation online with the Rhode Island Secretary of State. The reservation document will hold the business name for up to 120 days.
Every limited partnership in Rhode Island 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 Rhode Island Secretary of State,
The registered agent is an individual or entity that will accept all legal service for this entity. The agent must be a Rhode Island resident or entity qualified to do business in this state. A Rhode Island street address is required, NOT a P.O. Box. In addition to all legal service of process, other important correspondence from the state will be sent to this address.”
Without a registered agent in Rhode Island, 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.
To do so, you’ll need to file a document known as the Certificate of Limited Partnership with the state of Kentucky. This simple one-page form officially creates your LP, and it includes these important pieces of info:
The Rhode Island Certificate of Limited Partnership form and instructions can be found here as a PDF file.
Cost to Form an LP: The state of Rhode Island charges a filing fee of $100 to form a limited partnership.
Processing Time: Typically, it will take 3-4 business days for the Secretary of State to process your formation upon receiving your completed Certificate of Limited Partnership.
While not legally required by the state of Rhode Island, 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.
Depending on what goods or services your Rhode Island limited partnership offers, you’ll likely be required to pay several taxes. Two of the most common or sales tax and use tax. Limited partnerships are also required to pay an annual fee equal to the corporate tax of $400.
If your LP has any number of employees, you’ll likely be required to pay withholding tax or other employer taxes. Beyond these, there may also be several industry-specific tax requirements like the ones listed here.
More information on business tax liability can be found on the State of Rhode Island’s Department of Revenue Division of Taxation website. The majority of your state-level business taxes can be filed online through Rhode Island’s Business Tax Filings Service.
Depending on where in Rhode Island your business is located, you may also need to pay local taxes.
Especially if your limited partnership has any real estate or tangible assets, you’ll need to pay local tax. For example. Warwick and Providence have their own local taxes. To be sure you’re meeting all local tax needs, consult the taxation section of your city’s website.
In Rhode Island there is no general business license; depending on the nature of your business and where it operates, you may be required to obtain several other licenses, permits, or certifications.
You’ll first want to make sure you’ve met any necessary occupational licensing requirements. Most other state-level licenses needs can be researched and obtained online through the Licenses Section of the Department of Business Regulation website.
You’ll also need to ensure you’re meeting all local license requirements. For example, Providence and Richmond have their own license and permit requirements for businesses operating within their jurisdiction.
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.
If your Rhode Island limited partnership has employees, you’ll need to meet the state’s insurance requirements. While employee healthcare is not required by law, all businesses with employees are required to carry both workers’ compensation insurance and unemployment insurance. For more information on workers’ compensation insurance, consult Rhode Island’s Employer Guide. To register for unemployment insurance, use the Division of Taxation’s Combined Online Registration Service. 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.
While Rhode Island Limited Liability Partnerships and Corporations are required to file annual reports, there is no annual report form necessary for limited partnerships.
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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