What Is a Limited Partnership?
A limited partnership is a business structure made up of at least two partners, similar in nature to a general partnership. However, unlike in a general partnership that requires at least two general partners, a limited partnership requires that there be at least one general partner and at least one limited partner.
This structuring offers the limited partners limited personal liability when it comes to business debts. Any limited partners in the partnership can only be personally liable up to the amount of their investment. Whatever amount they’ve contributed toward the partnership is the maximum amount of money they could lose.
Difference Between General Partnership and Limited Partnership
Let’s explore the difference between a general partnership and limited partnership further, as there are a number of differences between the two. One of these differences can be found in the role of the partners within these different partnership structures.
In a general partnership, partners share profits on an equal basis and are subject to equal responsibility for liabilities, whether for debts or legal settlements. In a limited partnership, where there must be a general partner and a limited partner (at least one of each), profits and liability are shared in correlation to the partner’s monetary investment in the partnership.
Another difference that you’ll find between the two is in the formality of the business structures themselves. Limited partnerships have an established formation process in the state of New Mexico, whereas general partnerships do not require a formal formation. In order to form your limited partnership, we’ll guide you through the process in the next section.
Forming Your New Mexico Limited Partnership
It’s worth noting that the formation process for limited partnerships tends to be a bit more complicated than a general partnership or LLC. If you’ve ruled out these options and have determined that a limited partnership best meets your business objectives, enlisting the services of an attorney for your formation process may be worthwhile.
Name Your Limited Partnership
Unlike a general partnership where individuals can operate under their own names, the state of New Mexico requires that you provide an official name for your limited partnership. The name you choose must include a reference to its entity type, such as the abbreviation “LP” or “L.P.”.
Additionally, you’ll want the name to reflect the mission and objectives of the business, while also appealing to potential customers or investors. Note that the name must also be unique from other businesses operating in the state of New Mexico. So, you’ll want to preform an entity name search using the free tool located on the Secretary of State website.
If you settle on a name that you’re happy with but are not yet ready to officially register your limited partnership with the state, you can reserve the name for a period of 120 days (with the option to renew). New Mexico does not have an official name reservation form when it comes to limited partnerships, but you can draft your own document that includes your desired partnership name, along with applicant name, address, and signature. Include a $50 filing fee made out to the New Mexico Secretary of State.
Choose a Registered Agent
Your next requirement as a limited partnership in the state of New Mexico is choosing a registered agent. Your registered agent can be either an individual with a physical address in the state or an entity that is authorized to conduct business in the state.
In either case, your registered agent must have a physical street address to list on your registration documents (cannot be a PO box). Additionally, the registered agent must be available to receive legal documents and government correspondence on behalf of your business and be available during regular business hours.
File Certificate of Limited Partnership
Next up, you’ll need to officially register your limited partnership with the state of New Mexico, in particular, the Business Services Division. While there is no registration form specific to limited partnership formation, you can draft your own document that contains the following information:
- Limited partnership name
- Address of designated LP office
- Name and address of registered agent
- Name and address information of each general partner
- Any other pertinent information
Draft Limited Partnership Agreement
This next step is not a requirement in the state of New Mexico, however it’s widely regarded as smart practice. Drafting a limited partnership agreement provides the opportunity to detail important operations and agreements between the partners.
Each limited partnership agreement will vary in nature depending on the objectives of the partnership, its size, and other factors. So, while each agreement will be unique, there tend to be a few common elements that are helpful to address, such as:
- The roles of general partners and limited partners
- Management and decision-making structures
- Initial partner investments
- Profit and loss allocation
- Accounting methods
- Voting procedure and meeting schedule
- Plans for dissolution
Obtain Employer Identification Number (EIN)
Once your limited partnership has successfully been created, you’ll need to apply for a federal employer identification number (EIN), which is a unique identifying number assigned to your business. This number is used by the IRS to identify your entity and is necessary to have if you plan on hiring employees, opening a bank account, or applying for loans, among other things.
Prepare for Business
Once you have obtained your EIN, it’s a smart idea to open a separate bank account for your business. Separating your business finances from the personal finances of the partners will help to protect your assets and simplify your record keeping.
It’s also important that you obtain any necessary business licenses or permits that pertain to your industry. While New Mexico does not have a general business license necessary for operating in the state, there is still licensing that occurs at the local level and licensing that is industry-specific.
Also, depending on the nature of your industry and structure of your business, you may also need to look into insurance, such as workers compensation insurance or general liability insurance, among other industry-specific policies.