Do you want to form a limited partnership (LP) in Alaska, 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 Alaska.
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 Alaska, 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 Alaska state government, and there is also a formation fee involved.
Whereas the state of Alaska 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 the State of Alaska, all limited partnerships must include the phrase “Limited Partnership” in their business name without abbreviation. 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 Alaska, or you’ve officially formed your business.
To acquire your desired business name in the State of Alaska, you should begin by conducting a business entity search to determine whether your desired name is available. Then, you can reserve your desired business name by filling out a Business Name Reservation form.
However, when you reserve your desired business name, you should not include a corporate indicator (e.g. “Limited Partnership”) as that would imply that the business has already been formed. You will formally acquire your business name when you register your LP with the Alaska Department of Commerce.
Every limited partnership in Alaska 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 Alaska Secretary of State,
Alaska Statutes states a Corporation shall (must) continuously (without interruption) maintain in this state (Alaska only) a registered agent (an individual resident of Alaska or a corporation authorized to transact business in Alaska, depending on your entity type, see question #3) and a registered office (a physical location and a mailing address in Alaska) for the purpose of a registered agent’s statutory requirements to receive service of processes, notices, or demands required or permitted by law to be served upon the Corporation.”
Without a registered agent in Alaska, 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.
You will start this process by filing a Certificate of Limited Partnership with the Alaska Department of Commerce, Community, and Economic Development. By filing this form, you will officially form your LP.
To complete this form, you will need the following information:
To file your Certificate of Limited Partnership, you can print and fill out the PDF form available online. You can then submit the form by fax or mail.
Cost to Form an LP: The state of Alaska charges a filing fee of $150 to form a limited partnership.
Processing Time: The standard processing time for a Certificate of Limited Partnership is 10-15 days, but delays may occur during peak filing season (October-February).
While not legally required by the state of Alaska, 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.
Alaska does not require LPs to file any type of formal income tax. LPs are not subject to corporate income tax, and because Alaska does not levy a state income tax, partners do not need to pay individual income tax to the State of Alaska. You will, however, still need to file for federal income taxes.
Although Alaska does not levy any kind of income tax on LPs, your LP may need to register for business-specific taxes. If your LP has employees, then you must pay employer withholding tax. Additionally, if your LP is involved in certain industries, then you may need to pay industry-specific taxes, such as fisheries-related taxes or taxes on rental properties. However, Alaska does not levy a state sales tax.
Although Alaska levies fewer taxes than other states, you should take care to ensure that your LP is registered for any business-related taxes. To do so, you can use the Alaska Department of Commerce’s online portal, which will help you determine which taxes you must pay and automatically register your business for them.
Depending on where in Alaska your business is located, you may also need to pay local taxes.
Most large cities and counties – such as Anchorage, Fairbanks, and Juneau – will levy local sales tax and other business taxes, so you should ensure that you understand all local tax requirements.
To operate in the State of Alaska, most businesses will need to obtain a business license from the Alaska Department of Commerce. To obtain a new business license, you can either print, fill out, and mail this form, or, in some cases, you may be able to file online. A new business license in Alaska will cost $50.
In addition to this general business license, you may also need other, industry-specific licenses or permits. Many businesses in Alaska usually require some type of professional license or other type of license or permit, so you should ensure that you understand all licensing and permitting requirements for your particular business.
To see what licenses or permits could apply to your business, then you should use the Alaska Department of Commerce’s online portal to search available licenses. You should also consult with your county or municipal government to ensure that you obtain all relevant local licenses and permits.
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.
All businesses with employees are legally obligated to have two types of insurance – unemployment insurance and workers’ compensation insurance. Unemployment insurance is usually paid automatically through taxes, whereas workers’ compensation insurance is typically obtained through private insurers. 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.
The State of Alaska requires that all LPs file biennial reports every other year, and you must renew your Alaska business license on an annual basis.
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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