Wyoming Limited Partnership
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.
General Partnership (GP)
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:
- Better management due to a more diversified skill set. A wider range of available skills can result in better management and make a company more competitive.
- More capital at the business's disposal than a sole proprietorship. The partnership's ability to obtain credit may be greater than that of a sole proprietorship because it can use the personal assets of its partners as collateral for loans or to settle the debts of the business.
There are also disadvantages to a general partnership, for example:
Greater Liability - The partners are jointly and severally
liable for the debts of the partnership, regardless of the
origination of the debt. A creditor can sue one, a few, or all
of the partners to recover a debt owed to them.
For example, if all the partners have modest resources except for one billionaire, the creditor may choose to file a lawsuit against all of them, or seek to recover the entire amount from the billionaire only. So, only a small investment in a partnership can expose a partner to a great deal of liability.
- More Paperwork - The partnership arrangement must be documented in a formal agreement that properly outlines the terms under which the partnership is to be owned and operated, and how new partners may be added. If capital needs expand beyond the capacity of the partners, it might prove difficult to attract new partners if the existing partnership arrangement creates barriers to the entry of new partners.
- Slow Decisions - Since many partners may be involved in policy decisions, slow decision-making may result from the fact that all the various partner's voices have to be heard before any decision can be made.
Limited Partnership (LP)
Another form of partnership is a limited partnership. These partnerships are composed of two distinct classes of partners:
- General Partners - who manage the business; and
- Limited Partners - who contribute capital (cash or other assets), but do not take part in the company's management.
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:
- Liability for the limited partners is limited to their capital investment in the business;
- The general partners can raise cash without involving outside investors in the business's management. This is a key point for limited partners who want to retain their "investor only" status.
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.
Forming a Limited Partnership in Wyoming
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.