Do you want to form a limited partnership (LP) in Ohio, 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 Ohio.
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 Ohio, 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 Ohio state government, and there is also a formation fee involved.
Whereas the state of Ohio 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 Ohio, all limited partnerships are required to register with a name that includes the word “limited partnership” or some other approved variation. Acceptable abbreviations include “limited,” “L.P. and “Ltd.” 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 Ohio, or you’ve officially formed your business.
Before attempting to claim a name, you’ll first need to make sure your business name is available using the Ohio Secretary of State’s availability search and guidelines. After finding an available name, you may reserve it for up to 180 days by filing a Name Reservation (Form 534-B) by mail. The cost to file the document is $39 which is payable to the Ohio Secretary of State.
Every limited partnership in Ohio 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 Ohio Secretary of State,
Each limited partnership shall maintain continuously in [Ohio] an agent for service of process on the limited partnership. The agent shall be one of the following: a natural person who is a resident of this state, a domestic or foreign corporation, nonprofit corporation, limited liability company, partnership, limited partnership, limited liability partnership, limited partnership association, professional association, business trust, or unincorporated nonprofit association that has a business address in the state.”
Without a registered agent in Ohio, 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.
Doing so requires the filing of a document named the Certificate of Limited Partnership. To complete it, you’ll need the following information:
To file the Certificate of Limited Partnership, you’ll need to either complete it as a pdf here or submit it online here.
Cost to Form an LP: The state of Ohio charges a filing fee of $99 to form a limited partnership.
Processing Time: The standard processing time for the Certificate of Limited Partnership is 3-7 business days, though it varies based on volume of documents currently being processed. If you wish, you may choose to expedite your filing for an additional cost.
While not legally required by the state of Ohio, 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 taxes in Ohio are generally levied based on your business type and what types of goods or services it provides. Most partnerships will need to pay sales and use tax along with Ohio’s commercial activity tax. Other taxes you may or may not need to pay include employer withholding, unemployment compensation, municipal income taxes and others.
In order to determine which specific taxes your limited partnership is liable for and how to pay them, you will first need to register with the Ohio Department of Taxation either by phone or online through the Ohio Business Gateway.
Additional information on Ohio taxation requirements for businesses can be found on Ohio’s Business Tax Page.
Depending on where in Ohio your business is located, you may also need to pay local taxes.
Some jurisdictions have specific municipality sales or income tax rates. For a full list of municipalities and their rates, you may consult this list. When you register with the Ohio Department of Taxation you will be informed which municipal taxes you owe.
Because some localities have their own specific taxes and rates, you’ll want to check with your local government to ensure your limited partnership is meeting all of its local tax requirements.
In Ohio, each business is required to register with the state. Commonly, this registration process is referred to as a “business license”. In addition to this general business license, however, you may need to obtain several other licenses or permits issued from various state agencies.
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 Ohio limited partnership has any employees, you’ll be required to pay for both workers’ compensation insurance and unemployment insurance. Details on workers’ compensation insurance and how to obtain it can be found through the Ohio Bureau of Workers’ Compensation; information on the state’s unemployment insurance can be found through Ohio’s Unemployment Insurance website. 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.
In contrast to many other states, business entities in Ohio are not required to file annual reports.
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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