What is an LP? An LP is a Limited Partnership, which is a type of business structure that requires at least two partners, which are a general partner and a limited partner.
In this article, we’re going to explain everything you need to know about LPs to start considering this option for your own business purposes. This will include an overview of how to register an LP and answers to common questions we receive from our members on the topic.
This article is part of our free series on corporate banking solutions and features around the world, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Is an LP?
- How to Register an LP
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Is an LP?
An LP is a Limited Partnership which is a business structure formed between two individuals or entities, offering legal entity status, business registration, liability protection, profit sharing, and other partnership benefits.
This unique approach to business formation usually allows the business to avoid business taxation as profit sharing results in any income being distributed to each limited partner. Each limited partner is then liable for reporting and paying taxes on the income they receive from the business partnership.
When an LP is formed, a partnership agreement needs to be prepared, outlining the specific roles and responsibilities of the partners. For example, one partner may be responsible for accounts receivable. In other words, managing cash flow, assessing working capital, making projections, or even managing cross-border transactions by using a bill of exchange.
But most importantly, the partnership agreement also outlines the exact steps for partnership dissolution.
Additionally, it’s important to note that most countries have a provision requiring that one member be the general partner of the LP. The general partner typically assumes full personal liability for the LP, while the LPs do not have liability.
With this in mind, before forming an LP, it’s important to consider what kind of liability this business structure could expose you to if you are the general partner.
How to Register an LP
To register an LP, the partners will need to follow a series of important steps. That said, these steps may vary depending on the specific jurisdiction where they plan on registering the LP, though they are generally the same in most jurisdictions. With this in mind, here is a look at the specific steps to register an LP.
Steps to Register a Limited Partnership
- Select a name for the limited partnership
- Confirm who will be the general partner(s) of the limited partnership
- Confirm who will be the limited partner(s) of the limited partnership
- Prepare a partnership agreement for the limited partnership
- Complete registration with the relevant authorities
- Pay any necessary fees for registering the limited partnership
- Obtain an Employer Identification Number for the limited partnership
- Open a bank account for the limited partnership
- Comply with any ongoing regulatory requirements
- Comply with tax reporting requirements
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into what an LP is including a few non-structuring questions about LPs in the world of investing. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Is an LP the Same as a Limited Liability Partnership?
No, an LP (Limited Partnership) is not the same as an LLP (Limited Liability Partnership). In an LP (Limited Partnership), there are two types of partners, the general partners and the limited partners. On the other hand, in an LLP (Limited Liability Partnership), all partners enjoy the benefits of limited liability.
What Does LP Mean in Private Equity?
In private equity, LP refers to a limited partner that is an investor in a private equity investment fund or investment partnership. While general partners manage the investment fund, limited partners are passive participants, investing their capital along with other investors and usually paying fees for management and performance to the general partner.
How Do You Become an LP in a Fund?
To become an LP in a fund, you will need to meet the necessary requirements to qualify as a potential investor. Importantly, every jurisdiction and investment fund has unique parameters around who can qualify to invest as an LP. With this in mind, if you are considering a specific fund, you should contact the investor relations team and ask for the fund prospectus, which will outline who can become an LP and what restrictions and risks may be associated.
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