Do you want to form a limited partnership (LP) in Washington DC, 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 Washington DC.
What Is a Washington DC 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 Washington DC, 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 Washington DC state government, and there is also a formation fee involved.
How to Form a Washington DC Limited Partnership (in 6 Steps)
Step One) Choose an LP Name
Whereas the state of Washington DC 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 Washington DC, all limited partnerships are required to include the phrase “limited partnership” or the abbreviation “L.P.” or “LP” 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 Washington DC, or you’ve officially formed your business.
First, you’ll want to make sure your desired name is available for use. This can be done by searching Washington DC’s business name database through the CorpOnline Web Portal. If the name is available, you may reserve it for your limited partnership by filing a Name Reservation Registration & Transfer Form with the Corporations Division of the District of Columbia Government.
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 Washington DC 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 Washington DC Secretary of State,
an individual or domestic or foreign entity that serves in the District as the agent for service of process of an entity; an individual who holds the office or other position in an entity who is designated as the agent for service of process; a member in good standing of the District of Columbia Bar who maintains an office in the District of Columbia.”
Without a registered agent in Washington DC, 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.
To register a domestic limited partnership in Washington DC, you must complete and submit a document known as the Certificate of Limited Partnership. Whether you complete it online or as a paper form, you’ll need to include the following information:
- Name of the limited partnership
- Street address of the limited partnership’s principal address
- Name and address of the registered agent
- Name, street address and mailing address of each general partner
- Indication of whether the limited partnership is a limited liability partnership
- Signature of an authorized individual
Cost to Form an LP: The state of Washington DC charges a filing fee of $220 to form a limited partnership.
Processing Time: The Certificate of Limited Partnership has no listed standard processing time; inquiries regarding document processing should be directed toward the Corporations Division of the District of Columbia Government.
Step Four) Create a Limited Partnership Agreement
While not legally required by the state of Washington DC, 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 Washington DC, many limited partnerships are required to pay industry-specific taxes based on which goods or services it provides.
In Washington DC, all passthrough entities (such as limited partnerships) are required to pay the District’s unincorporated franchise tax. Additionally, if you sell goods or services within the District, you’ll be required to pay sales and use tax.
For help establishing your limited partnership’s exact state-level tax liability, you’ll want to make an account with MyTax.DC. Using the platform, you can discover which taxes apply to you and receive instruction on how to pay them.
Depending on where in Washington DC your business is located, you may also need to pay local taxes.
Step Six) Obtain Business Licenses and Permits
In order to become fully authorized to operate within Washington DC, many limited partnerships are required to obtain a Basic Business License (BBL). Whether or not this licensing requirement applies to your business will depend on the industry in which it operates.
In many cases, you may also need to obtain other regulatory or professional licensing from the Business License Center. To determine your limited partnership’s exact licensing requirements, you’ll want to visit the Licensing Section of the Department of Consumer and Regulatory Affairs.
Should you need to apply for a Basic Business License, you may do so easily by creating an account with the DC Business Portal.
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 Washington DC 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 Washington DC limited partnership has one or more employees, you’ll need to acquire both unemployment insurance and workers’ compensation insurance. Information on both of these respectively can be found in the Unemployment Section or the Workers’ Compensation Section of the Department of Employment Services website. 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 Washington DC, most business entity types (including limited partnerships) are required to file a two-year report with the Corporations Division of the District of Columbia Government. First reports are due on the first of April on the year following the limited partnership’s formation. To complete the document, you may fill it out here as a PDF and submit it by mail. Alternatively, it may be filed online through the CorpOnline site.
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.