Do you want to form a limited partnership (LP) in Idaho, 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 Idaho.
What Is an Idaho 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 Idaho, 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 Idaho state government, and there is also a formation fee involved.
How to Form an Idaho Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Idaho 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:
Limited partnerships choosing to form in Idaho are required to include the words “Limited Partnership,” or the abbreviation “L.P.” in the business name. If the business matches Idaho’s standards as a professional entity, the name must include the word “Professional” before the word “Limited” or use the abbreviation “P.L.P” 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 Idaho, or you’ve officially formed your business.
Before attempting to claim a DBA with the Idaho Secretary of state, you’ll want to run a business search to confirm that it’s available. If the desired name is not currently registered to another entity, you may claim it by filing an Application for Reservation of Legal Entity Name. The document may either be completed as a PDF file and mailed or it may be submitted online through SOSbiz.
Step Two) Designate a Registered Agent
Every limited partnership in Idaho 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 Idaho Secretary of State,
The registered agent is the person named to receive service of process on behalf of the corporation if litigation occurs…A post office box is not accepted as an address for a registered office. The registered agent must be a person or another corporation located at a physical street address in Idaho. A post office box can be used for the mailing address for the corporation.”
Without a registered agent in Idaho, 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.
Doing so mandates the filing of a document referred to as the Certificate of Limited Partnership. You’ll need to include the following information on the document before submitting it:
- Name of the limited partnership
- Complete street and mailing address of the limited partnership’s principal office
- Name and street address of the registered agent
- An indication of whether the limited partnership is a limited liability partnership or not
- Listing of the limited partnership’s permitted professional services
- Names and signatures of all general partners
Cost to Form an LP: The state of Idaho charges a filing fee of $100 to form a limited partnership with an additional $20.00 fee for handwritten forms
Processing Time: Idaho processes all limited partnership filings on a daily basis. Within a week to ten days, you’ll receive a copy of the filing by return mail as confirmation of the document’s processing.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Idaho, 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.
Most state-level limited partnership taxes in Idaho are levied depending on what taxable goods or services your business provides. Sales and use tax are two of the most common business taxes, although motor fuel tax, excise tax, liquor tax, and other industry-specific taxes may apply to your limited partnership.
Fortunately, Idaho has plenty of resources for businesses looking to establish their state tax liabilities. You may find the Idaho Tax Commission’s list of state-level taxes helpful. Further assistance as well as instructions on registering for all necessary taxes can be found through the Idaho Taxpayer Access Point.
Depending on where in Idaho your business is located, you may also need to pay local taxes.
To ensure your limited partnership is meeting all local tax requirements, you’ll want to consult the town or city government of the municipality in which your business operates.
Step Six) Obtain Business Licenses and Permits
Not all Idaho limited partnerships will require business licenses, but depending on the nature of your business and what goods or services it sells, several will likely be necessary.
Regulatory licenses are generally industry-specific and pertain to specific business practices. To make establishing your regulatory license requirements easier, the state has created a Regulatory Requirements Wizard that will help you determine which licenses you’ll need to apply for.
In addition to regulatory licensing, professional licensing may also be necessary. These licenses and certifications pertain to specific professions. You may find information regarding professional licenses using the Idaho Bureau of Occupational Licenses,
Lastly, you must check the licensing requirements of the municipality in which you live. In addition to state-level licenses, local certifications may also be necessary. For information on these, consult the city or town office of the municipality in which your limited partnership is established. For example, Boise, Meridian, Nampa, Idaho Falls and Pocatello each have local standards.
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 an Idaho 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 limited partnership plans to take on any employees, you’ll be required to meet the state’s employer insurance requirements. These include obtaining both workers’ compensation insurance and unemployment insurance. Information on how to obtain workers’ compensation insurance can be found in the Employer FAQs section of the Idaho Industrial Commission. In order to obtain unemployment insurance, you’ll need to register with the Idaho Department of Labor through the Idaho Business Registration System. 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.
Like many states, Idaho requires limited partnerships established within its jurisdiction to file an annual report with the Secretary of State. Currently, the Idaho government only accepts submissions of the report online through the SOSBiz system. There is no fee.
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.