Do you want to form a limited partnership (LP) in Utah, 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 Utah.
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 Utah, 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 Utah state government, and there is also a formation fee involved.
Whereas the state of Utah 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 Utah, all limited partnerships are required to include the words “limited partnership” in the name. The abbreviations “L.P.” and “LP” also suffice. It may not, however contain the words “limited liability limited partnership” or any abbreviations alluding to the phrase. 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 Utah, or you’ve officially formed your business.
First, you’ll want to make sure your desired business name is available by consulting the Utah Secretary of State. After establishing that the name is not already in use, you may reserve it by filing an Application for Reservation of Business Name with the Secretary of State.
Every limited partnership in Utah 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 Utah Secretary of State,
a Utah registered agent can be one of two things: an individual who is an adult resident of the state, or a business entity (either domestic or foreign) that has the qualifications to legally transact business in Utah. In either case, a physical street address is absolutely necessary; P.O. boxes do not qualify.”
Without a registered agent in Utah, 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 establish your limited partnership legally, you’ll need to file a Certificate of Limited Partnership with the Utah Department of Commerce Division of Corporations and Commercial Code. This can be done either through mail, email, fax, or in person. You’ll need to include the following information when completing the document:
Cost to Form an LP: The state of Utah charges a filing fee of $40 to form a limited partnership.
Processing Time: The Utah Department of Commerce Division of Corporations and Commercial Code lists no standard processing time; processing time may vary depending on the time of year.
While not legally required by the state of Utah, 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.
Which taxes you need to pay on behalf of your Limited Partnership will depend on the nature of your business. Thankfully, Utah makes reporting state taxes and other business requirements quite easy through the Utah One Stop Business Registration system.
In many cases, businesses are required to pay sales and use tax in addition to other state taxes. More information on sales and use tax and what businesses are liable to pay it can be found on the Utah Tax Commission website.
Depending on where in Utah your business is located, you may also need to pay local taxes.
Many municipalities (for example Weber County, Salt Lake City, and Park City) have their own taxes that your limited partnership may or may not be required to pay. To ensure you’re meeting all taxation requirements on a local level, consult the taxes page of your city or town government webpage.
Not every Utah business will require a license; depending on the nature of your business, what goods/services it sells, and where it’s located, you may need to meet several business license requirements.
State-level licenses are usually industry-specific and are issued through one of several government agencies, such as the Utah State Tax Commission, the Utah Labor Commission, The Utah Departmentment of Workforce Services, and others. More information on state business licenses can be found by visiting the Business Registration and Licensing Regulations section of the Utah state government.
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 Utah limited partnership has any employees, it will likely be required to carry several forms of insurance. For example, you’ll need to pay for unemployment insurance by establishing a Utah UI tax account with the Utah Department of Workforce Services. This, and many other business services, can be done through Utah’s One Stop Business Registration website. Additionally, most Utah employers need to carry workers’ compensation insurance. More information on workers’ compensation service and who it applies to can be found by consulting with the Utah Insurance Department or the Labor Commission. 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.
Utah requires most business structures to file an annual report through the Secretary of State. This can be done through the Annual Business Reports page. For limited partnerships, annual reports should be filed on the anniversary date of the business’s formation, or up to 60 days prior. There is a $15 filing fee to submit the document.
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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