Do you want to form a limited partnership (LP) in South Carolina, 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 South Carolina.
What Is a South Carolina 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 South Carolina, 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 South Carolina state government, and there is also a formation fee involved.
How to Form a South Carolina Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of South Carolina 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:
Limited partnerships established in South Carolina are required to include the words “limited partnership” or the abbreviation “LP” or “L.P.” in the business name. 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 South Carolina, or you’ve officially formed your business.
Before attempting to claim the name, it’s required that you check the name availability using the Business Name Search on the state website. If available, you may reserve the name for a 120-day period by filing an Application to Reserve Name with the South Carolina Secretary of State.
Get Your Business Domain
To fully embrace the business name, register your URL. With GoDaddy you’ll be able to quickly build a company website so that nobody else can use or take it.
Step Two) Designate a Registered Agent
Every limited partnership in South Carolina 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 South Carolina Secretary of State,
The registered agent is the person authorized to accept service of process or other legal documents for another person. Generally, a registered agent can be a natural person, a business corporation, nonprofit corporation or a limited liability company. There are specific rules that apply to registered agents for each entity type. Please make sure that you review these rules before naming a registered agent.”
Without a registered agent in South Carolina, 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 South Carolina, the process to establish a limited partnership begins with the completion of the Certificate of Limited Partnership document. To fill out the form, you’ll need the following information:
- Name of the proposed limited partnership
- Address of the office of the registered agent
- Name of the initial registered agent
- Address of the principal office
- Name and mailing address of each general partner
- An indication of the latest date at which the limited partnership is to dissolve
- Any optional provisions deemed necessary by the partners
- The signatures of each general partner
Cost to Form an LP: The state of South Carolina charges a filing fee of $10 to form a limited partnership.
Processing Time: Documents submitted online are often processed within a 24 hour period; those submitted by mail are generally processed within two to three business days, depending on the time of year and office workload.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of South Carolina, 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.
In South Carolina, limited partnerships are generally levied regarding what goods or services the business offers. In most cases, companies selling taxable goods or services within the state will be required to at least pay sales and use tax, though other business taxes may be necessary.
Fortunately, the state has plenty of resources and information available regarding tax liabilities and filing requirements. From the South Carolina Department of Revenue’s website, you can research various business taxes, discover your tax liabilities, register your business, and file online.
Depending on where in South Carolina your business is located, you may also need to pay local taxes.
Some municipalities in South Carolina (such as Greenville) will likely have their own local tax requirements. Always check with the taxation office of your county or town to confirm you’re aware of all local tax liabilities.
Step Six) Obtain Business Licenses and Permits
Though South Carolina has no general business license that will fully authorize your limited partnership to do business within the state, it does have many other professional and regulatory licenses which may be required.
In order to discover your business’s specific state-level licensing requirements, you’ll need to register with the South Carolina 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 South Carolina 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 you plan to hire employees, your limited partnership will be required to meet South Carolina’s employer insurance requirements. In most cases, for companies with fewer than 50 employees, employer-provided health insurance is not mandated. However, limited partnerships with just four or more employees will be required to carry workers’ compensation insurance, and those with any number of employees must pay unemployment insurance tax. Information on workers’ compensation insurance can be found through the Workers’ Compensation Commission; limited partnerships may register for unemployment insurance through South Carolina Business One Stop. 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 contrast to many other states, South Carolina has no annual report filing requirements for limited partnerships.
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.