Do you want to form a limited partnership (LP) in Tennessee, 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 Tennessee.
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 Tennessee, 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 Tennessee state government, and there is also a formation fee involved.
Whereas the state of Tennessee 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:
All Tennessee limited partnerships are required to contain the phrase “limited partnership” in the name. The abbreviations “L.P.” and “LP” are also permitted. 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 Tennessee, or you’ve officially formed your business.
Before trying to reserve a Tennessee business name, you must first conduct a Business Name Availability search with the Secretary of State. When you’ve confirmed that your desired name is available and that it meets all business name requirements, you may reserve it for a period of 120 days by filing the Application for Name Reservation with the Tennessee Secretary of State.
Every limited partnership in Tennessee 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 Tennessee Secretary of State,
A corporation transacting business in Tennessee is required to have a person or legal entity located in this State designated to receive documents on its behalf, and this function is served by the registered agent. The registered agent’s name and street address in Tennessee must be on file with the Division of Business Services at all times.”
Without a registered agent in Tennessee, 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 filing of a document called the Certificate of Limited Partnership. You’ll need to include the following details on the form:
The Certificate of Limited Partnership may be completed as a PDF file here and submitted to the Business Services Division of the Tennessee Secretary of State.
Cost to Form an LP: The state of Tennessee charges a filing fee of $10 to form a limited partnership.
Processing Time: The Tennessee Secretary of State lists no standard processing time.
While not legally required by the state of Tennessee, 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 state-level taxes your limited partnership will be required to pay are determined by the nature of your business. For example, if you buy or sell goods in the state, you will likely be required to pay sales and use tax. However, other taxes (such as excise tax and franchise tax) may also be necessary.
Thankfully, Tennessee provides tons of helpful information and resources when it comes to determining your state-level liability and registering to pay all necessary taxes. For more information on state business taxes, consult the Tennessee Business Tax Guide or visit the Business Tax section of the Department of Revenue.
All Tennessee business taxes must be submitted electronically and paid online using the Tennessee Taxpayer Access Point (TNTAP).
Depending on where in Tennessee your business is located, you may also need to pay local taxes.
Each city our county will likely have its own taxation requirements; check the tax section of the municipality’s website to be sure you understand your company’s liabilities. Additionally, a comprehensive list of business taxes based on location can be conveniently looked up here.
The state of Tennessee has no general business license that covers all business types; which licenses and permits you need will depend entirely on what goods or services your limited partnership offers and where it is located.
If your LP’s taxable sales exceeds $10,000, you are required to obtain a standard business license. Alternatively, LPs with less than $10,000 in taxable sales may still be required to apply for a minimal activity license. Information on both of these licenses can be found in the Registration and Licensing Section of the Department of Revenue website.
When checking your LPs license requirements, you need to ensure it meets both state-level and local requirements. To discover what state-level licenses are mandatory for your business, visit the Licenses & Permits Section of the Tennessee State Government. To check your local licensing requirements, consult the licensing section of your city our county website.
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.
Depending on your business type and whether you have employees, you will likely be required to carry certain types of insurance. In most cases, you will be liable to carry workers’ compensation insurance as well as unemployment insurance. It should be noted that while most employers in Tennessee are not legally required to provide healthcare insurance for their employees, many elect to do so. 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.
Like many states, Tennessee requires all LPs to file an annual report. This can be done conveniently online through Tennessee’s Business Services Page.
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?