How to Form a Limited Partnership (LP) in Louisiana

A limited partnership (LP) is a specific type of business partnership. It affords each limited partner legal protection against individual liability for the debts, losses, and violations of the partnership. There should be at least one general partner and one limited partner in a Louisiana limited partnership. Of course, there may be more than one of each type of partner.

The limited partnership form of business allows all limited partners to have limited liability. General partners in a limited partnership manage the business of the partnership and remain personally liable for all of its debts and other legal obligations.

The extent of a limited partner’s liability depends on the individual partner’s investment in the partnership. Its liability for debts, obligations and losses is limited to the amount of its investment in the partnership.

Limited partnerships are known as “partnerships in commendam” in Louisiana, but aside from the quaint terminology, a limited partnership in Louisiana is much like a limited partnership in any other state in terms of setting it up and running it.

So, for example:

• Limited partners are not allowed to manage the day-to-day operations of the business, and have personal liability protection;
• Limited partners are only liable for the money they have invested into the partnership. Their potential losses are limited to the amount they have invested as well;
• General partners are personally liable without limitation for the business debts, but they control the day-to-day operations;
• A limited partnership is taxed on its income as a pass-through entity as is a general partnership. This means that the income is passed through to the partners who must pay the tax on the income;
• The main attraction of limited partnerships is that they utilize outside investors to fund the business and protect them from the company’s debts and obligations, while the general partners run the enterprise and remain fully liable.

There are other types of limited partnerships in Louisiana. Each is different from a limited partnership as follows:

• Limited Liability Partnership: In a limited liability partnership (LLP), no partner can be held liable for other partners’ errors, omissions or frauds. These types of partnerships are very popular with professionals who may have significant liability risk, typically from malpractice lawsuits, such as doctors and lawyers. For example, if three doctors start an LLP and one of them is sued for malpractice and found liable for damages, the other doctors would not be personally liable to pay the obligation. Each partner is solely responsible for their own professional liability.
  • Otherwise, obligations of the LLP, whether arising from contracts or otherwise, are solely the obligation of the partnership. A partner is not personally liable, directly or indirectly, by way of contribution or otherwise, for such an obligation just because they are a partner;
• Limited Liability Limited Partnership: A limited liability limited partnership (LLLP) is a blend of a limited partnership and a limited liability partnership. An LLLP may have both general and limited partners, but all partners are protected from each other’s debts, errors, and legal obligations. Like an LLP, the LLLP is popular with professions that carry malpractice risk and also seek outside investment. The LLLP is similar to an LLP in which each partner is protected from the liability of the others.
  • There are two types of partners, general and limited. General partners manage day-to-day operations and limited partners are more like silent investors. An LLLP is taxed as a pass-through entity like a general partnership, but with additional fee and tax requirements;
• Limited Liability Company: If an enterprise needs additional choices in connection with taxation or greater protection from personal liability, it may want to consider forming a limited liability company (LLC). The LLC business structure has many of the advantages of partnerships while offering greater flexibility for tax purposes. On the downside, they often require more effort to maintain than a partnership but even so, they are known for their simplicity.

What Are the Requirements for an LP?

To form an LP in Louisiana, a written limited partnership agreement must be filed with the Louisiana Secretary of State. The partnership agreement must contain the following information:

• A name for the partnership that clearly identifies it as as limited partnership;
• The address for the principal place of business of the limited partnership;
• Names and addresses of all partners in the limited partnership, and a statement indicating their status in the limited partnership;
• At least one general partner’s name and address; and
• A statement of the contribution that each partner in the limited partnership has agreed to make or has made.

In addition, the partnership must register the business name, and file the correct paperwork. It is also probably best practice to include certain terms and conditions in the partnership agreement which might not be required by law, but could prove vital in managing the affairs of the partnership.

For example, it would be useful to specify how a partner may withdraw from the partnership, as well as the following:

• Information regarding each partner, their name and contact information;
• The responsibilities of the partners and whether each one is a general partner or a limited partner;
• The allocation of profits and losses for the partners, which are typically equal amongst general partners and different for limited partners;
• The nature of the of the partnership’s business activities;
• The mission statement of the partnership;
• Whether there are restrictions on management and leadership. For example, if there is more than one general partner, whether one will be the managing partner and how the managing partner is selected;
• Provisions regarding dispute resolution and whether disputes will be subject to alternative dispute resolution methods;
• Instructions governing terminating the partnership.

What Paperwork Is Required to Form an LP?

To form a Louisiana limited partnership, the partners must file a document with the Secretary of State called “Certificate of Limited Partnership”. They must pay a filing fee as well.

What Benefits Does Louisiana Give to an LP?

There are several benefits of having a limited partnership in Louisiana. These benefits are:

• Limited Liability: Again, the limited liability of limited partners is the main benefit of a Louisiana limited partnership. As a practical matter, this means that if the business goes bankrupt, the limited partners would only be liable for any debts of the partnership up to the amount of money they invested in the business and nothing more.
  • Likewise, if the general partners are running a professional services business, e.g. a law firm, medical practice or engineering firm, the limited partners cannot be liable for professional malpractice judgements beyond the amount of their investment in the firm;
• Tax Benefits: The profits and losses in an LP flow through the business to the partners, all of whom are taxed on the income on their personal income tax returns;
• Less Paperwork: Formation of an LP involves less paperwork than formation of a corporation.

What Disadvantages Are There to an LP in Louisiana?

Limited partnerships in Louisiana do have some disadvantages. One of these is that limited partners have less of a say in the business than the general partners. If a limited partner were to become active in the management of the LP, the general partners would view this as a risk. In addition, unlike the general partners in the business, limited partners’ income is not managed by the partnership for tax purposes, so they may have to pay self-employment tax.

Should I Hire a Business Lawyer?

The law surrounding the requirements and protections of limited partnerships depend on the law in each state. If you are interested in participating in a limited partnership in Louisiana, it is in your best interests to consult a local Louisiana corporate lawyer for guidance regarding the limited partnership laws in that state. Your attorney will be able to assist you with tasks such as filing, creating documents, and negotiating and drafting partnership agreements.