Do you want to form a limited partnership (LP) in Washington, 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 Washington.
Whereas the state of Washington 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 Washington, all limited partnerships are required to contain the words “Limited Partnership” or the abbreviation “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 Washington, or you’ve officially formed your business.
Before claiming your business name, you’ll want to make sure the name is available for use by searching it using the Washington Secretary of State’s Business Entity Search. After confirming that your desired name is not currently in use, you may reserve it by submitting a Name Reservation form. After filing, the name will be reserved for 180 days.
Every limited partnership in Washington 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 Washington Secretary of State,
Both domestic and foreign entities are required to maintain a registered agent. All registered agents must maintain a street address in Washington State for service of process, notice, or demand. An alternate mailing address can be provided, but it must also be in Washington State. The Secretary of State’s Office mails all notices to the registered agent, unless directed otherwise by the entity.”
Without a registered agent in Washington, 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.
Establishing your limited partnership will require the filing of a Certificate of Limited Partnership. To complete the document, you’ll need the following information:
The Certificate of Limited Partnership can be found here as a PDF and filed by mail with the Washington Secretary of State.
Cost to Form an LP: The state of Washington charges a filing fee of $180 to form a limited partnership.
Processing Time: The Washington Secretary of State lists no standard processing time, but if you’re in a rush you may expedite your filing by paying a $230.00 filing fee in lieu of the standard $180 fee.
While not legally required by the state of Washington, 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 state-level taxes in Washington will be levied depending on what goods or services your limited partnership provides.
Commonly, businesses in the state across the board will be required to pay business and occupation tax, retail sales tax, and use tax. While the state has no personal or business income tax, these taxes and others (such as industry-specific taxes and real and personal property tax may also be necessary).
While it may seem overwhelming to determine your limited partnership’s tax liability, the state has made it as easy as possible by providing information on taxes through the Department of Revenue. Using the website’s features, you can discover your tax responsibilities, search frequently asked questions, and file your taxes online.
Depending on where in Washington your business is located, you may also need to pay local taxes.
For example, many municipalities have their own local sales tax as well as local business & occupation tax. While the Washington Department of Revenue handles all state and local sales tax through the Department of Revenue, you’ll need to contact the city or town in which your business operates to inquire about local business & occupation tax as well as any other local tax liabilities.
To sort out your limited partnership’s license and permit requirements, you’ll need to complete Washington’s Business License Application. In completing the application, you’ll be able to determine your state and most of your loca licensing requirements.
In addition to business-related licenses, it’s recommended that each LP owner make sure all professional license requirements have been satisfied as well. For example, those working in architecture, body piercing, home inspections, and many other professions may need to obtain one of the professional licenses issued by the state.
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.
Washington limited partnerships that have one or more employees are required to carry certain types of employer insurance. Unemployment insurance and workers’ compensation insurance. Unemployment insurance can be obtained online when you register with the Washington Department of Revenue, while more information on workers’ compensation insurance can be found by visiting the Department of Labor & Industries. Lastly, if your business has 50 or more full-time employees, then the Affordable Care Act requires that you provide health insurance or pay a tax to the federal government. 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, Washington requires its limited partnerships to file a periodic report to update the state on its information. To keep your LP in good standing, you’ll be required to file one annually. This can be done either by paper or online through the Washington Corporations and Charities Filing System. There is a $60 filing fee to submit the form.
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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