Do you want to form a limited partnership (LP) in Maine, 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 Maine.
What Is a Maine 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 Maine, 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 Maine state government, and there is also a formation fee involved.
How to Form a Maine Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Maine 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:
In Maine, every limited partnership is required to include either “Limited Partnership”, “LP” or “L.P.” in the limited partnership name. 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 Maine, or you’ve officially formed your business.
Before claiming a name, you’ll want to check its availability using Maine’s Corporate Name Search. After confirming that the name isn’t already registered with another business entity, you may reserve it by filing an Application for Reservation of Name. The document will reserve the name for 120 days and costs $20 to submit.
Step Two) Designate a Registered Agent
Every limited partnership in Maine 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 Maine Secretary of State,
all businesses in the state are required to maintain a registered agent within Maine upon which process may be served if necessary. An agent may be a resident of main or a qualifying business that has a physical street address within the state.”
Without a registered agent in Maine, 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.
Establishing a limited partnership in Maine requires the filing of a Certificate of Limited Partnership with the Secretary of State. To complete the form, you’ll need the following information:
- Name of the limited partnership
- Street and mailing address of the limited partnership’s designated office
- Name of the commercial or non-commercial registered agent
- Name, street and mailing address of each general partner
- Indication of whether the partnership is a limited liability partnership
- Names and signatures of general partners
To complete a Certificate of Limited Partnership, you may download the document as a PDF file, print it, and mail it to the Maine Division of Corporations Secretary of State.
Cost to Form an LP: The state of Maine charges a filing fee of $175 to form a limited partnership.
Processing Time: While the Corporations Division states no standard processing time, you may choose to expedite your document’s processing for an additional charge. You may choose to pay $100 for immediate filing or $50 for 24 hour service.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Maine, 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 that will likely apply to your business are levied based on what goods or services you offer. For example, if you sell certain taxable goods, you’ll be required to pay both sales and use tax. Other taxes such as motor fuel tax, liquor tax, and lodging tax my also likely apply depending on the nature of your business.
Fortunately, Maine offers plenty of resources and assistance when it comes to establishing liability and paying taxes. More information on state business taxes in general can be found through the Business Taxes page of the Maine government website. To file online, you must register with the Maine Revenue Service’s Tax Registration Service.
Depending on where in Maine your business is located, you may also need to pay local taxes.
Some counties or cities have their own local tax requirements that will apply to businesses located within their jurisdiction. To ensure you’re meeting all local taxation standards, consult the tax office of your local government. Assistance with finding the right municipal government can be found using the state’s Local Government Portal.
Step Six) Obtain Business Licenses and Permits
Most businesses operating within Maine will first of all require a general business license. These licenses are issued at a local level, and must be obtained either from the town or city office of the municipality in which the business is located.
In addition to local licensing, your limited partnership will also need to meet state-level licensing requirements. These licenses are generally either regulatory or professional licenses. For information on professional licensing, visit the Resources by Profession page of the Main government website.
Information on all other regulatory licenses as well as guidance regarding which ones are needed by your limited partnership can be found through the Business Licensing Assistant located on the Business Answers service page.
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 Maine 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 Maine limited partnership has even a single employee, you’ll likely be required to acquire both unemployment insurance and workers’ compensation insurance. Unemployment insurance can be acquired when you establish a UI tax account with the Maine Department of Labor. More information on workers’ compensation insurance, who needs it, and how to register for it can be found through the state’s Workers’ Compensation Insurance Guide. 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.
Maine requires all limited partnerships operating within its jurisdiction to file an annual report. The processing for these reports is $85 for domestic businesses and $150 for foreign businesses. Annual reports must be completed online through the Annual Report Online Filing System by June 1st.
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.