Do you want to form a limited partnership (LP) in Connecticut, 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 Connecticut.
What Is a Connecticut Limited Partnership?
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 Connecticut, 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 Connecticut state government, and there is also a formation fee involved.
How to Form a Connecticut Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Connecticut 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:
All Connecticut limited partnerships must include the phrase “limited partnership” in their names without abbreviation. 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.”
Do You Like It?
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 Connecticut, or you’ve officially formed your business.
You should first ensure that your desired business name is available by running a business registry search online. If your desired name is available, then you can reserve it by filing an Application for Reservation of Name with the Secretary of State. However, if you are ready to form your LP, then you can claim your name when you officially file your Certificate of Limited Partnership.
Get Your Business Domain
To fully embrace the business name, register your URL. With GoDaddy you’ll be able to quickly build a company website so that nobody else can use or take it.
Step Two) Designate a Registered Agent
Every limited partnership in Connecticut 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 Connecticut Secretary of State,
(a) Each corporation that is required to file an annual report as provided in section 33-953 shall continuously maintain in this state: (1) A registered office that may be the same as any of its places of business; and (2) a registered agent at such registered office.”
Without a registered agent in Connecticut, 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.
Step Three) File the Certificate of Limited Partnership
At this point, it’s time to legally form your new limited partnership.
To create your LP, you will need to file a Certificate of Limited Partnership with the State of Connecticut. However, Connecticut does not provide an actual Certificate of Limited Partnership for you to fill out and submit, so you will need to create your own document that includes the following information:
- Name of the LP
- The LP’s principal office and mailing address
- Registered agent’s name and address
- Each general partner’s name and address
- The end date for your LP
- Delayed effective date (if applicable)
- All other relevant information about your LP
Because Connecticut does not provide a form for you to fill out, you will need to create your own Certificate of Limited Partnership from scratch. You can find further guidance at the Connecticut Economic Resource Center.
Cost to Form an LP: The state of Connecticut charges a filing fee of $120 to form a limited partnership.
Processing Time: Average processing times in the State of Connecticut usually range from 2-3 business days, but keep in mind that processing times tend to increase during heavy filing season.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Connecticut, 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:
- The term (in years) of your partnership
- Identities and roles of general and limited partners
- Initial capitalization and ongoing capital contributions
- Allocation of profits/losses
- Management structure
- Voting rights and meeting plans
- Accounting and record-keeping practices
- Conditions for transfer and dissolution
Step Five) Handle Taxation Requirements
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.
All limited partnerships in Connecticut are subject to the Business Entity Tax – a $250 tax that must be paid every other year. Additionally, if your partnership is required to file for federal partnership income tax, then you may also need to file a partnership income tax return in the State of Connecticut.
Connecticut also imposes what’s known as a Controlling Interest Transfer Tax. According to the Connecticut Department of Revenue Services, “The controlling interest transfer tax is a tax imposed on the sale or transfer for consideration of a controlling interest in an entity.” Therefore, if you shift assets from a former partner to a new partner, you will need to take this 1.11% tax into consideration.
From there, the taxes that you will need to pay will depend on the nature of your business. For instance, if your business provides locksmith services, pet services, or even window cleaning services, you may be subject to certain business-specific taxes. Additionally, LPs that hire employees will need to pay employer withholding tax.
If you’re unsure of your tax burden in the State of Connecticut, you should use the Taxpayer Service Center. All LPs may use this helpful online tool to register their business with the Connecticut Department of Revenue Services and determine which taxes that they are liable for.
Depending on where in Connecticut your business is located, you may also need to pay local taxes.
Step Six) Obtain Business Licenses and Permits
In Connecticut, you do not need a general business license to operate your LP legally within the state.
You may, however, need certain industry-specific licenses to operate compliantly. Businesses in industries from child care to car sales need certain types of state licenses and permits, so there’s a good chance that you will need at least one to legally operate your business.
To ensure that you have acquired all licenses and permits that may be relevant to your business, you should search the Connecticut Economic Resource Center’s database of permits and licenses to see what could apply to your business. To see if you need any local permits, you should consult this directory to find your city or town to look up any local requirements.
Would You Prefer a Professional Form Your LP?
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 of our favorite options also provide LP formations ― namely, LegalZoom and BizFilings. Either one of them should do a great job forming your new LP.
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.
Next Steps: What to Do After Creating a Connecticut LP
Open a business bank account
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 Connecticut business hires any employees, then you are required to hold two types of insurance - unemployment insurance and workers’ compensation insurance. For unemployment insurance, you will usually have to register with and report to the Connecticut Department of Labor, but you will likely purchase workers’ compensation insurance through the private market. 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.
Income reportingLimited 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 Connecticut, your LP will need to file an annual report with the Secretary of State. This annual report only costs $20 to file, and it essentially serves to keep your LP’s information updated with the State of Connecticut. You can file this annual report online, and if you need assistance, you can consult this step-by-step guide.
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.