People who are starting a business together often fail to grasp the importance of choosing the right type of business entity to structure their partnership. But, the type of partnership structure you choose will determine how much flexibility you will have in the management of your business and the extent to which the various partners may be held personally liable for each other's actions and for debts and liabilities of the partnership itself.
It is therefore important to determine the best type of partnership with which to structure and operate your business. To help you make the best choice for your business, this article discusses a Limited Partnership (LP) in relation to a General Partnership.
A General Partnership (GP) is a partnership in which all partners take part in the business's management and have unlimited personal liability for the debts and liabilities of the business.
A general partnership offers several benefits:
There are also disadvantages to a general partnership, for example:
Another form of partnership is a limited partnership. These partnerships are composed of two distinct classes of partners:
As opposed to the unlimited liability of the general partners, a limited partner's liability for the debts and liabilities of the partnership is limited to his or her capital contribution to the business.
A limited partner may share in business profits, as provided for in the partnership agreement, but must not take part in managing the company. If the limited partner chooses to take part in the company's management, it will deem them a general partner with unlimited personal liability.
Limited partnerships are most commonly associated with groups of individuals who invest in real estate. The biggest advantages gained by structuring as limited partnership are:
Undoubtedly, the biggest disadvantage of a limited partnership is that the general partners remain personally liable for all the business's debts and other liabilities. Therefore, considering that it is more expensive to create a limited partnership than a general partnership, the intentions of a limited partnership must be evaluated carefully before choosing this partnership structure.
In recent years, Wyoming has become one of the most popular states to form a business. Even though it is one of the least populated states in the country, it offers many advantages for business' owners.
With the lowest personal income taxes and corporate taxes in the nation, low fees, and a streamlined formation process, Wyoming enables businesses to be formed in a cost-effective time-efficient manner.
To form a limited partnership in Wyoming, you must file a Certificate of Limited Partnership with the Wyoming Secretary of State. Furthermore, your limited partnership’s name must contain, without abbreviation, the words “limited partnership.”
You must also prepare a limited partnership agreement specifying the partnership's purpose and establishing the rights and responsibilities of its partners.
The fee to register a limited partnership with the Wyoming Secretary of the State is only $100, with an annual report fee of $50. These are some of the lowest costs in the country for forming and maintaining a business.
For assistance with forming a limited partnership in Wyoming, call us to arrange a free consultation. Our knowledgeable and experienced Wyoming business formation attorneys can guide you through every step of the process.