Do you want to form a limited partnership (LP) in Iowa, 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 Iowa.
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 Iowa, 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 Iowa state government, and there is also a formation fee involved.
Whereas the state of Iowa 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 Iowa, if a limited partnership does not contain a partner’s name, it’s required to contain the phrase “limited partnership” or the abbreviations “limited,” “Ltd.” 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 Iowa, or you’ve officially formed your business.
In Iowa, before reserving a business name you’ll need to first make sure it’s available by searching it using the Iowa Business Entities Search. If the name is not registered to another business, you may reserve it for your limited partnership by filing an Application for Reservation of Name with the Iowa Secretary of State.
Every limited partnership in Iowa 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 Iowa Secretary of State,
A registered agent is an individual (or a corporation depending on the business organization) designated by the entity to accept service of process if a lawsuit is filed against the entity. The registered agent may be an Iowa resident, an Iowa profit or nonprofit corporation, or a foreign profit or nonprofit corporation qualified to do business in Iowa.”
Without a registered agent in Iowa, 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.
Unfortunately, there is no pre-written form which can be used as the Certificate of Limited Partnership. Instead, those wishing to form a limited partnership in Iowa are required to draft their own formation document. In order to meet all state requirements, the document must include the following information:
After drafting the Certificate of Limited Partnership document using the form-drafting guidelines provided by the state, you may submit it to the Iowa Secretary of State in-person or by mail.
Cost to Form an LP: The state of Iowa charges a filing fee of $100 to form a limited partnership.
Processing Time: There is no listed processing time for the Certificate of Limited Partnership document. Inquiries regarding processing times can be directed toward the Iowa Secretary of State.
While not legally required by the state of Iowa, 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.
State-level business taxes for limited partnerships operating in Iowa are largely based on what goods or services the business offers and whether or not it has employees.
In most cases, limited partnerships which offer taxable goods within the state will be required to pay sales tax. If you have employees or operate in certain specified industries, you’ll likely need to pay other taxes such as use tax, retailer’s use tax, and withholding tax as well.
While determining your limited partnership’s tax liabilities may seem like a headache, Iowa makes it as easy as possible for business owners. Using the state’s Efile & Pay system, users are able to discover their state tax liabilities and register to pay them.
Depending on where in Iowa your business is located, you may also need to pay local taxes.
Often, municipalities will have their own local sales tax or tax filing standards, so be sure to check with the county or city in which your limited partnership operates in order to ensure you’re meeting all tax requirements.
While Iowa does not have a general business license that will fully authorize your limited partnership to perform transactions in the state, it does have many regulatory and occupational licenses which may or may not apply to you.
If you’re a member of one of the state’s specified professions, you’ll need to be licensed through the state. The Iowa Professional Licensing Bureau is the resource for researching and applying for these licenses.
In addition to occupational licensing, other regulatory licenses will likely need to be obtained. Thankfully, Iowa makes establishing your general partnership’s license requirements quite easy through the Business License Information Center.
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 Iowa as with most states, limited partnerships with employees are required to abide by certain regulations. Namely, they are generally required to obtain several types of employer insurance, two of which are workers’ compensation insurance and unemployment insurance. Further information on unemployment insurance and workers’ compensation can be found through the Iowa Workforce Development’s Employer Handbook and Insurance Page respectively. 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.
Iowa requires all limited partnerships established in the state to file a biennial report with the Secretary of State. If filed by mail, the document costs $60 to process. If filed online using the state’s Biennial Report Filing System, the processing fee is reduced to $45.
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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