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 Arkansas, 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 Arkansas state government, and there is also a formation fee involved.
Whereas the state of Arkansas 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 limited partnerships in the State of Arkansas must include one of the following phrases or abbreviations in their business name: “limited partnership,” “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 Arkansas, or you’ve officially formed your business.
You can check to see whether your desired business name is available by conducting a business entity search on the Arkansas Secretary of State’s website. Then, once you have determined that your desired business name is available, you can file an Application for Fictitious Name with the Arkansas Secretary of State. Once your application has been approved and returned to you, you must also file it with your local county clerk’s office.
If you are not ready to form your LP, you may also reserve your business name for 120 days by filing an Application for Reservation of Corporate Name.
Every limited partnership in Arkansas 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 Arkansas Secretary of State,
Each corporation shall maintain a registered agent at its principal office or place of business upon whom may be served any process, notice, or demand required or permitted by law to be served upon the corporation. The registered agent may be changed upon the filing of proper notice in the office of the Secretary of State.”
Without a registered agent in Arkansas, 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 officially create your LP, you will need to file a single-page document known as a Certificate of Limited Partnership, which includes the following information:
In order to complete your Certificate of Limited Partnership, you can print this PDF form, fill it out, and submit it to the Arkansas Secretary of State.
Cost to Form an LP: The state of Arkansas charges a filing fee of $50 to form a limited partnership.
Processing Time: After submitting your Certificate of Limited Partnership, the Office of the Arkansas Secretary of State will take 2 business days to process your paperwork. If you visit in person, some filings can be processed on the same day.
While not legally required by the state of Arkansas, 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.
Limited partnerships in the State of Arkansas do not need to pay any kind of corporate income tax or franchise tax on the state level, but you will need to pay certain types of state taxes depending on the nature of your business.
If your LP has employees, for instance, then you will need to pay employer withholding tax, or if your business sells or rents goods, then you will also need to pay sales and use tax. You also may need to register for industry-specific taxes, such as lodging taxes on vacation rentals or excise taxes on tobacco or alcohol sales.
If you are unsure of which state-level taxes will or will not apply to your limited partnership, you should use the Arkansas Taxpayer Access Point. This convenient online tool will allow you to register your business with the Arkansas Department of Finance and Administration and automatically sign you up to pay any taxes that your business is legally obligated to pay.
Depending on where in Arkansas your business is located, you may also need to pay local taxes.
All major Arkansas cities – namely Little Rock, Fort Smith, and Fayetteville – have their own business obligations and resources, so you should check with your local government to ensure that you have met all tax and other obligations.
The state of Arkansas does not require all businesses to obtain a general business license, but depending on the nature of your business, you may need certain industry-specific licenses to operate legally in Arkansas.
LPs in certain industries, such as child care, cosmetology, or general contracting, will typically need some kind of business or professional license. Arkansas has many of these kinds of licenses and permits, so you likely may need one for your limited partnership.
To ensure that your business is fully compliant with all Arkansa licensing and permitting requirements, you should use the State of Arkansas’ business resources, and you can search for agencies relevant to your area of business to check their individual licensing requirements. You should also check with your local government to ensure that you are in compliance with all local licensing and permitting laws.
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 LP has employees, then you are required by law to have two types of business insurance – workers’ compensation insurance and unemployment insurance. If you have question about these policies, you should consult the Arkansas Workers’ Compensation Commission or the Arkansas Department of Workforce Services. 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.
All LPs in the State of Arkansas must file an annual report with the Arkansas Secretary of State. This report allows you to inform the state of any pertinent updates about your LP. You may file this report either online or by mail, and you must pay a nominal $15 to file the report.
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.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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