In this article, our Iowa business attorneys discuss limited partnerships, the requirements for setting up a limited partnership, the benefits and disadvantages to setting up a limited partnership in Iowa, and the process for setting up the limited partnership.
What is a Limited Partnership?
A limited partnership is a legal way to structure a business between two or more individuals or entities. Normally, in a limited partnership, there is a general partner and limited partners. The general partner is tasked with managing the business and overseeing operations while the limited partners have no direct management of the company.
As the name implies, the limited partners have limited liability in the business up to the amount of their investment, while the general partner has unlimited liability. However, the general partner will reap much greater rewards if the business is successful. An example of a limited partnership company in real estate would be an experienced property manager starting a company to flip houses with investors filling the roles of the limited partners. The property manager has the most to gain, but also the most to lose if the business fails.
What are the Requirements for a Limited Partnership?
Each state has its own set of requirements for forming a limited partnership, with many requirements being similar from state to state. The process is not rigid, and having a good attorney can help you figure out the best structure for your business, but Iowa does have a handful of mandatory requirements for setting up a limited partnership:
- Choose a Name for the Limited Partnership - The business can have just about any name you want, except that it can’t be the same as any other business name on file in Iowa. You can check the availability of your business name at the Iowa State Corporation Commission. The official business name must also include L.P. or LP in some form.
- Certificate of Authority - The certificate of authority can be obtained from an Iowa Secretary of State office, and must include information such as the name of the LP, registered agent, principal office location, information on all the partners, and the address of the registered agent, which must be in Iowa
- Choose a Registered Agent - The registered agent is the individual or entity for the company that makes sure any important information or legal issues make it to the business. Iowa law requires an LP to have a registered agent that resides in Iowa
- Signature of the General Partner
- Partnership Agreement - A partnership agreement is not required by law in Iowa, but it is highly advisable that one be drafted and signed by the general partner and all limited partners. A partnership agreement will help resolve future disputes between the general partner and the limited partners.
What Benefits Does Iowa Give Limited Partnerships?
- Maybe you just want to be an investor and not have to deal with any business decisions or greater liability. In Iowa, the LP shields limited partners from debts and legal liability incurred by the company;
- LPs in Iowa are not required to reform every time a partner dies;
- Pass-Through Tax Entity: In Iowa, LPs are taxed as pass-through entities, meaning that they are not double-taxed liked corporations. Instead, the partners are taxed based on their individual tax brackets when they receive a share of the LPs profits;
- LPs are not required to file biennial reports in Iowa;
Disadvantages of Forming a Limited Partnership in Iowa
There no inherent disadvantages of a limited partnership in Iowa versus any other state. The main two disadvantages shared across most LP locations include 1) the cost of filing, which starts at $100 and goes up depending on the needs of the business, and 2) the liability of the general partner being much greater than the limited partners.
Process of Starting a Limited Partnership
Beyond what we’ve discussed above there are a number of other steps that must be taken in order to launch your limited partnership companies. These include:
- Obtaining licenses, permits, and zone clearance (if applicable) for your business;
- Obtain an Employment Identification Number (EIN);
- Determine the partnership’s tax and regulatory obligations;
- Open a bank, determine if your company needs health insurance benefits, etc
Starting a business of any kind, limited partnership or otherwise, can be time-consuming and confusing. There are many different types of business partnerships and corporations, and every business is different. Determining the correct legal business formation from the outset of your company is very important. If you have any questions don’t hesitate to call our office and speak to one of our qualified attorneys.
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