Do you want to form a limited partnership (LP) in Nebraska, 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 Nebraska.
What Is a Nebraska 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 Nebraska, 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 Nebraska state government, and there is also a formation fee involved.
How to Form a Nebraska Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Nebraska 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:
Although the Nebraska Secretary of State sets forth no explicit, easily accessible regulations regarding allowable abbreviations, many of those choosing to form an LP in the state will select to include abbreviations in the business name that indicate it as a limited partnership. Several popular choices include “limited,” “limited partnership,” “Ltd.,” or simply “LP.” 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 Nebraska, or you’ve officially formed your business.
First, you must check with the Nebraska business search database to see if your considered name is available. Once you’ve decided on an available name, you may choose to reserve it by completing the Application for Reservation of Limited Partnership Name. The reservation costs $15 and is good for 120 days.
Step Two) Designate a Registered Agent
Every limited partnership in Nebraska 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 Nebraska Secretary of State,
The registered agent can be a member of the entity or a designated third party who resides in Nebraska. The registered agent may be a corporation as long as the corporation is authorized to transact business in Nebraska. The registered agent’s office must be identical to the registered office.”
Without a registered agent in Nebraska, 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.
In order to establish your limited partnership, you’ll need to file a document known as the Domestic Certificate of Limited Partnership. There is no standard form to complete when it comes to submitting this document; instead, you are required to draft and submit your own document. In order to be processed successfully, it must include the following information:
- The names of all persons who will act as general partners
- The name of the limited partnership
- The address of its principal office and the name and street address of the registered agent, if one is to be listed
- The name of the business, residence or mailing address of each general partner
- Any additional details the partners choose to include
- The signatures of the general partners
After completion, the Certificate of Limited Partnership must be mailed to the Office of the Nebraska Secretary of State for filing. The form has a $200 filing fee.
Cost to Form an LP: The state of Nebraska charges a filing fee of $40 to form a limited partnership.
Processing Time: While the Nebraska Secretary of State has no listed processing times for documents, you may choose to reach out to the office at the time of the submission to inquire about estimated turnover.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Nebraska, 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.
State-level taxes will vary in Nebraska depending on what services or products your LP provides. It will not be subject to the corporation income tax or the state’s corporation occupation tax (sometimes known as a franchise tax). Instead, the individual partners will be required to pay tax on the LP’s earnings through their personal tax returns.
Additionally, LPs in Nebraska may required to pay use tax, sales tax, or other industry-specific taxes. Most necessary tax forms may be conveniently located on the forms page of the Nebraska Department of Revenue Website here.
For more information regarding taxes and which specific taxes your LP is required to cover, it’s suggested that you registered with Nebraska’s One-Stop Business Registration system. It can help answer questions, identify which forms will be necessary, and direct you towards other helpful tax resources.
Depending on where in Nebraska your business is located, you may also need to pay local taxes.
For a list of local tax rates, consult this chart located on Nebraska’s Department of Revenue website. The chart details the local tax rate for each individual local jurisdiction which may be applicable to your LP.
Step Six) Obtain Business Licenses and Permits
In Nebraska there is no general business license that LPs need to obtain. However, there may be other state or local licenses your LP needs to operate legally depending on the nature of your business.
If your LP falls into the categories of health and human services, agricultural produce, or the vending of liquor, you will most likely need a business license to operate legally. If you’d like to review which occupations require business licenses in Nebraska, the Nebraska Department of Labor has compiled this helpful list.
You may also choose to visit the Nebraska Government website Business Licensing Resources page for more information on licenses and how to apply for them.
Keep in mind that in addition to state-issued licenses, your LP may be subject to local licensing requirements as dictated by the local government of your city or town. To discover which local licenses you may need to apply for, we recommend you visit your city/county website or reach out to a staff member by phone.
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 Nebraska 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.
All Nebraska business entities that have employees (including Limited Partnerships) are required to pay a Nebraska unemployment insurance (UI) tax to the Nebraska Department of Labor. Businesses with employees are also required to carry workers’ compensation insurance, which may be either purchased from the private market or obtained through Nebraska’s Department of Insurance. 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 Nebraska, corporations, LLCs, and LLPs are required to complete annual or bienniel reporting. This usually occurs in April. However, LPs are exempt and therefore not required to file either an annual or biennial report with the Nebraska Secretary of State.
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.