Do you want to form a limited partnership (LP) in Virginia, 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 Virginia.
What Is a Virginia 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 Virginia, 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 Virginia state government, and there is also a formation fee involved.
How to Form a Virginia Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Virginia 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 Virginia, all limited partnerships are required to include the words “limited partnership,” “a limited partnership,” or the abbreviations “L.P.” or “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 Virginia, or you’ve officially formed your business.
In Virginia, you must first check the availability of a business name before attempting to reserve or register it. This can be done through the Commonwealth of Virginia State Corporation Commission entity search. If available, you may reserve the name using the Application for Reservation or for Renewal of Reservation of a Business Entity Name (form SCC631).
Step Two) Designate a Registered Agent
Every limited partnership in Virginia 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 Virginia Secretary of State,
Every Virginia and foreign business entity authorized to transact business in Virginia is required by law to continuously maintain in the Commonwealth a registered office and a registered agent. The sole statutory duty of the registered agent is to forward to the business entity at its last known address any process, notice or demand that is served on the registered agent. A business entity may not have, at any given time, more than one person serving as its registered agent in Virginia.”
Without a registered agent in Virginia, 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 requires the filing of a document known as the Certificate of Limited Partnership. To fill out the for, you’ll need the following details:
- Name of the limited partnership
- Name of the limited partnership’s initial agent
- The limited partnership’s initial registered office address
- Name and address of each general partner
- Principal address of the limited partnership
- Signatures of all general partners
The document may be completed online as a PDF file, printed, and submitted via mail to the Virginia state government.
Cost to Form an LP: The state of Virginia charges a filing fee of $100 to form a limited partnership.
Processing Time: There is no listed processing time for the Virginia Certificate of Limited Partnership document.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Virginia, 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 taxes that will apply to your limited partnership are determined based on what goods or products your business provides and the overall business structure.
For example, Virginia limited partnerships with any number of employees are generally required to pay employer withholding taxes. Those which sell taxable goods must often pay sales and use tax. Other business taxes may be necessary.
For more information on the state’s business taxes as well as your limited partnership’s tax liabilities, you’ll want to take advantage of the resources offered on the Business Tax section of the Virginia Tax Website. In order to register and pay your state taxes, follow the instructions located on this page.
Depending on where in Virginia your business is located, you may also need to pay local taxes.
To discover all local tax requirements, you’ll want to consult the tax office of the county or town in which your business operates.
Step Six) Obtain Business Licenses and Permits
On top of obtaining a general business license issued by the Commonwealth, you may need to apply for several other regulatory licenses. These licenses are generally industry-specific and determined based on the goods or products which your limited partnership offers.
To research licenses and discover your state-level requirements, you’ll need to register your limited partnership with the Virginia Business One Stop.
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 Virginia 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 has any number of employees, you’ll be required to meet Virginia’s employer insurance requirements. Businesses with more than two employees must carry workers’ compensation coverage. Businesses with one or more employees who work during at least twenty weeks in a calendar year are also required to pay for unemployment 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.
Virginia requires all limited partnership operating within the state to file an annual report. These reports are due by July 1 and must be filed with the Office of the Clerk. To request the appropriate form, you’ll need to contact the appropriate Clerk’s Office.
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.