Do you want to form a limited partnership (LP) in Indiana, 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 Indiana.
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 Indiana, 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 Indiana state government, and there is also a formation fee involved.
Whereas the state of Indiana 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 formed in Indiana are required to include the words “Limited Partnership” or the abbreviation “LP” at the end of the business name. 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 Indiana, or you’ve officially formed your business.
Before claiming a name for your limited partnership, you must check the name’s availability by calling Indiana’s Name Availability Line at (317) 232-6576 or running a name availability check using the state’s Business Search. After selecting an available name, you may claim it by filing the Reservation of Business Name through INBiz.
Every limited partnership in Indiana 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 Indiana Secretary of State,
All Corporations, Limited Liability Companies, Limited Partnerships, and Limited Liability Partnerships must maintain a Registered Agent and Registered Address within the State of Indiana. The Registered Agent is the legal representative and contact for the business. The Registered Agent cannot be the business entity itself. The Registered Agent may be a person or another formal business association which was incorporated (or qualified) in Indiana and which maintains a valid Registered Agent in Indiana.”
Without a registered agent in Indiana, 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 requires the filing of a Certificate of Limited Partnership. In order to complete and submit it, you’ll need the following information:
To complete the Certificate of Limited Partnership you may either download the PDF version, complete it, and mail it to the Business Services division of the Secretary of State, or you may complete the document online through INBiz.
Cost to Form an LP: The state of Indiana charges a filing fee of $100 to form a limited partnership.
Processing Time: The Indiana Secretary of State lists no standard processing time for the Certificate of Limited Partnership document.
While not legally required by the state of Indiana, 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 limited partnership taxes are largely based on what goods or services your business provides. For example, industry-specific taxes may apply to those who sell food or beverages and those who rent motor vehicles. Additionally, if your limited partnership has any employees it will be required to pay employer taxes.
Determining your business’s tax liability might seem like a headache, but Indiana makes it quite simple. For information regarding which taxes apply to you and how to pay them, you must simply register with INDBiz, the Indiana Department of Revenue’s online filing system.
Depending on where in Indiana your business is located, you may also need to pay local taxes.
Often, municipalitie will have their own local business taxes. To ensure that you understand your local tax liabilities, consult with the tax department of your local government.
While Indiana has no single business license that will authorize your business to operate lawfully within the state, it will likely require several other industry-related or occupational licenses.
With more than 400 licenses and permits that may or may not apply to your limited partnership, it likely feels overwhelming to begin determining your licensing requirements. Fortunately, Indiana makes it quite easy to establish and meet license and permit standards by providing extensive resources on the matter.
For help determining which licenses your limited partnership needs in order to operate in the state, you may consult the License and Permits section of the Business Owners’ Guide. For additional assistance, the Indiana State Government advises that you contact the State Information Center at (317) 233-0800.
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.
In the event that your Indiana limited partnership has employees, you’ll be subject to acquiring at least two types of employer insurance: workers’ compensation insurance and unemployment insurance. You may register for unemployment insurance online using the Uplink Employer Self Service program. However, workers’ compensation insurance must be obtained through a private carrier. Further information on both of these insurance types can be found in the appropriate sections of Indiana’s Business Owner’s Guide. 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.
While Indiana has no annual report, it does have a biennial report requirement that limited partnerships must file every two years. The report can be filed easily through the INDBiz website and is due on the month in which the business was originally registered with the state.
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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