A certificate of limited partnership defines the business relationship and provides proof of the legal business entity.

A limited partnership differs from a general partnership in that the partners do not share full responsibility or liability for the business. There are many benefits to a limited partnership, including:

  • Few decision-makers responsible for business decisions, reducing conflict
  • Only those who wish to be will be liable for the business
  • Capital is provided by all partners, providing more resources for leadership

This may not be the ideal business model for everyone, but it can work quite well if you have partners who only wish to provide capital, but not partake in the daily responsibilities of the company.

Limited vs. General Partners

The limited partner usually provides capital and nothing else. This person will not have any say in how the business is run, but neither will she be responsible should something go wrong with the business, unless it is directly related to her investment. If the general partners rack up some debt, the limited partner is not liable for the problem. For those who want to invest money and see a steady return without the responsibility of actually running a business, this can be an excellent way to go.

The general partner will be responsible for everything in the business, from the decision making to any problems that may be faced. In the case of more than one general partner, they will share the responsibilities. This also means that they will share the profits and losses and share the decision making. In the certificate of limited partnership, the general partners are the ones named, while the limited partners are kept anonymous.

In this business model, the general partners are able to call the shots and make the decisions. If this gets the business into trouble, they are responsible for getting the company out of problems.This can be a very good thing if some people want to merely inject cash, while others are more interested in providing the skills necessary to make the business grow. The best companies develop from a variety of people who can compensate for each other’s weaknesses and those with skills that compliment each other.

The Necessity of a Certificate of Limited Partnership

Most states do not require a certificate of limited partnership, but that doesn’t mean that you shouldn’t file one. It is a very effective document to have in case of legal issues arising in the future. It notifies the state of the existence of the partnership and provides a written record of the parties included in the partnership.

A certificate of limited partnership does not preclude the development and signing of a business contract among partners, both limited and general. Such a business contract will ensure that duties are defined and agreed to by all parties involved. It should also define how the partnership will dissolve in the event of disagreement, death or other event. These are important issues to address at the outset, so as not to negatively affect the business and personal relationships among the partners in the future.

Creating a Certificate of Limited Partnership

A certificate of limited partnership should include the following information:

  1. The name of the partnership (this must include the words “limited partnership,” be unique and use the lame of a partner)
  2. A general character of the business
  3. Address of the company office
  4. Name, address and written permission from the agent for service of process
  5. Name and business address of each general partner
  6. The last date when the limited partnership will dissolve
  7. Anything else you deem necessary to include

It can be risky, going into business with other people, so you want to make sure that you have safeguards in place. The certificate of limited partnership ensures that there is a record of the partnership, no matter how small or large it is. This, combined with the contracts that should also be in place, will help any of the partners defend themselves in court, if need be. It can also open doors for business bank accounts and other business related activities. Although you don’t have to file a certificate in most areas of the U.S., it’s still a good idea to do so.

Photo credit: Elizabeth West, August 30th, 2010