Certificate of Limited Partnership Defined
The Certificate of Limited Partnership is the document that officially creates a limited partnership as a business entity in Delaware. Though it is a simple document, it is nonetheless critical to the ongoing operations of the partnership it governs. The Certificate governs the internal affairs of the limited partnership, including management responsibilities, distributions, and the admission of new partners. But perhaps most importantly, it lays the essential foundation under which third parties will determine whether or not they can look to the limited partner(s) for partnership debts. If the Certificate is not correctly drafted, a third party may claim that a general partner has committed fraud in failing its duty to disclose material facts, and in so doing avoid the principles of limited liability .
For the purposes of clarity, the Secretary of State’s office describes a Delaware limited partnership as a partnership which has one or more general partners and one or more limited partners. The Delaware Code defines "General partner" as "any of the persons that have agreed in the certificate of limited partnership to be general partners of the limited partnership in accordance with [the Delaware Limited Partnership Act]". "Limited partner" means "any person who has been admitted to a partnership as a limited partner in accordance with an amendment to the certificate of limited partnership", Delaware Division of Corporations: FAQ.
Delaware Limited Partnerships Explained
When considering the formation of a limited partnership, the choice of jurisdiction is essential. For such entities and firms operating in this space, we feel that few states can compare with Delaware. While limited partnership forms are available from a handful of states, the standard choice of many is the Delaware Limited Partnership, which is similar to the Delaware Limited Liability Company in many ways. After all, it’s the state where the Corporate Lawyer Blog hangs its shingle, and we’re not the only ones who prefer it – thousands of corporations, general partnerships, limited liability companies and limited partnerships have been formed in Delaware already this year.
While there are many reasons for choosing the First State, one of the primary reasons is Section 17-101 of the Delaware LP Act sets out that an LP having its name specified must have the following form: The signature must also be notarized, but the notary need only announce that the document is executed within the state, not that the signatory is actually from the state of Delaware. To gain entry to the Delaware LP, it could be the case where the form is used by someone in Texas but filed with the Secretary of State in Delaware.
The Delaware LP Act says that the LP need only have one general partner, so one could convert an existing general partnership into an LP with a simple Amendment by adding an LP a/k/a a passive owner. This is a common method of forming an LP and we see this done every day.
The LP Act requires each partner to contribute capital and all partners will have the same voting powers, unless otherwise specified in the LP agreement. Section 17-303 states: Management of the limited partnership is governed by contract. A person becomes a "general partner" when he is admitted as such, in accordance with the partnership agreement or the LP Act.
An LP may be dissolved by written consent of all partners, but would not be dissolved upon the dissolution of a general partner. The consequences of dissolving the firm are spelled out in Section 17-701 – and the laws state that dissociating partners liabilities remain for claims as they occur and require mediation before litigation can be attempted to resolve disputes arising from the LP agreement.
The Delaware LP Act also provides that a limited partner is essentially just an investor in the limited partnership and is not involved in the business. The rights of limited partners are spelled out in detail in sections 17-301 and 17-302; in the context of the LP structure, a limited partner usually will have no authority to bind the LP unless he or she is also a general partner.
Unlike the Delaware LLC act, the LP Act mandates the filing of Certificate of Limited Partnership, which includes the name and address of the registered agent, the name of the LP and the name of the LP’s general partner, who need not be a Delaware resident. Once this document is recorded with the Delaware Secretary of State, the LP comes into existence. The Certificate must be amended if the name of a general partner changes, the duration changes or a new general partner is added.
The LP structures has the benefit of limited liability for investors a/k/a Limited Partners but also shields General Partners from the punitive damages in excess of their capital contributions. Because they can be formed quickly at low cost in Delaware, the courts here are used to LP cases of all sizes. The LP Act governs how these firms operate, providing a solid structure that has been tested and refined over decades in court.
We think the Certificate of Limited Partnership is a valuable tool for the firm and for the LP investors and we hope you’ll consider a Delaware LP!
The Process to Get a Certificate of Limited Partnership
In Delaware, the steps to obtaining a Certificate of Limited Partnership are analogous to those for the Delaware General Partnership and the Delaware Limited Liability Company, but have some more specific requirements.
The Delaware Limited Partnership Agreement
This document is the most fundamental document for the limited partnership entity and must contain the name of the entity, name of the general partner, duration of the entity and the name and address of an agent for service of process. Also, similar to those agreements for other types of business entities, the Delaware limited partnership agreement should also have all of the pertinent details concerning the business operations of the limited partnership, including the capital contributions to the business, the manner of distributions, the numbers of partners, etc. And, there are provisions related to transferability and withdrawal of a limited partner, buying and selling interests in the company and the remaining rights and liabilities of a dissociated partner.
Certificate of Limited Partnership
From this, the Certificate of Limited Partnership must then be filed with the Delaware Secretary of State – Division of Corporations. This document contains the name of the limited partnership, the county in Delaware which the principal office is located, the name and address of the registered agent and anything else required. The Certificate must be executed by the general partner and filed with the Delaware Secretary of State, Division of Corporations. If everything in the Certificate is accurate, the Secretary will then send out a stamped copy of the agreed upon application and this will constitute the Certificate of Limited Partnership.
Filing Fees and Taxes
The minimum filing fee is $50. The minimum annual tax due is $250. In addition, the Delaware Limited Partnership, like other Delaware entities, must pay the $200 Delaware franchise tax due each year.
Legal Needs Associated with a Limited Partnership in Delaware
Every LP is required by the Delaware LP Act to have a registered agent for service of process. The registered agent must be an individual resident of Delaware, or a corporation, partnership, limited partnership, limited liability company, or business trust having a usual place of business in, or registered office in, Delaware. See 6 Del. C. § 17-109(b). A registered office must be continuously maintained in Delaware, and the LP (and/or its general partner) is required to keep those address on file with the Delaware Secretary of State. See 6 Del. C. § 17-107. Every LP shall deliver registered agent and office information to the Delaware Secretary of State "in a form satisfactory to the Secretary of State" or "in such other form or manner specified by the Secretary of State." See 6 Del. C. § 17-207(b). Every LP must deliver to the Delaware Secretary of State a "certificate of limited partnership" to be filed as a part of the public records. See 6 Del. C. § 17-201(a). Because the certificate of limited partnership requires the same basic information as the certificate of formation of a LP formed in Delaware (demanding to know the name of the partnership, the identity of the general partner(s), general partners’ registered agent(s) and office, and any other matters the general partner(s) care(s) to include), it should come as no surprise that many people often refer to the "certificate of limited partnership" as a "certificate of formation" or "certificate of incorporation." See 6 Del. C. § 17-100 et seq.; see also 6 Del. C. § 17-201(a) ("A certificate of limited partnership shall be strictly construed to be a certificate of formation of a limited partnership."). Delaware permits limited partners to delegate to the general partner or to another limited partner the right to manage the LP by so providing in the LP agreement or through amendments to the LP agreement. See 6 Del. C. § 17-301(c). The Delaware LP Act requires limited partners to make their contributions (which are required to be set forth in the LP agreement under § 17-403) when they become partners or at the time specified in the LP agreement. 6 Del. C. § 17-403(a). However, limited partners may not be required to make additional contributions pursuant to 6 Del. C. § 17-308(a).
Frequent Pitfalls with Filing
Common Mistakes to Avoid When Filing for a Certificate of Limited Partnership in Delaware
When filing for a Certificate of Limited Partnership, there are several mistakes that business owners should be aware of and avoid when registering their business in Delaware. One common error is not carefully reviewing the application process and related documentation. Even though the process seems relatively straightforward, business owners should familiarize themselves with the state’s requirements for forming a limited partnership. Read all the documentation carefully prior to beginning the filing process. Verify that you have everything you need to complete the process before starting. The form needs to be signed by at least two partners and should be current; you shouldn’t use old versions of documents or forms. The next common mistake is assuming the process can be handled by anyone instead of working with an attorney who is well versed in this area. While you may have trusted individuals on staff who have handled the registration process for previous businesses , you should hire a lawyer who specializes in business registration to review the process and the documents you’ve submitted. Even omissions and mistakes on the paperwork can create hassles down the road, so having a professional look it over can save you time, money, and headache later on. Incomplete documentation is another big issue. It may seem like extra work, but be sure to complete the entire form. If you’re not sure of how to answer a question or what information should go in a specific field, ask your lawyer for clarification. Leaving parts of the form blank may actually cause the filed business record to be rejected by the state, which will result in you having to start the process all over again.
Changing or Terminating a Certificate
The amendment of a Certificate of Limited Partnership is governed by 6 Del. C. § 17-207. Limited Partnerships are able to amend their certificate to: (a) restate the certificate of limited partnership in its entirety and without amendment, so that the text of the certificate of limited partnership as designated in the restated certificate of limited partnership shall be the certificate of limited partnership as currently in effect and as amended; (b) add or change any statement that is permitted to be added or changed in the certificate of limited partnership under this chapter; (c) delete statements that are then inapplicable; or (d) make any other change permitted by this chapter. A Certificate of Limited Partnership may be canceled at any time when there are no limited partners. (6 Del. C. § 17-203). The cancellation of a Certificate of Limited Partnership is governed by 6 Del. C. § 17-208.
Delaware Certificate of Limited Partnership Fees
Filing and maintaining a Delaware LP incurs several costs that must be carefully considered. Foremost are the filing fees to incorporate and maintain the LP. The filing fee for the Certificate of Limited Partnership is currently $200, while an expedited service can cost between $50 and $200 more, depending on the requested speed of processing. It takes one business day to process the application in person or by facsimile, but if you require faster processing, you may pay $100 to expedite registration on the same business day or $200 for immediate registration. A mail application will take about two to three weeks. When applying for a Certificate of Limited Partnership, you will also need an Agent to receive service of process in Delaware as an LLC, Corporation or as an LLC with an accompanying Certificate of Formation. Each of these filings incurs an additional fee of $55 and a $6.00 Certificate of Status fee.
In addition to these initial fees, there are also ongoing costs to maintain the LP. Annual Delaware taxes are currently $250, though this increases to $300 for LPs elected as LLCs. To keep your LP active, you must also file an annual report with your registered agent in order to keep it in compliance. If non-compliance occurs, several measures may be taken on the LP’s behalf, including an administrative dissolution or penalties of up to $200 per month for up to 3 months followed by an administrative penalty of $1,000 each month until all filing fees are made.
Professional Help for Your Legal Issue
As with any other legal entity formation process, guidance from professionals and industry leaders is highly recommended in the LP creation process. Attempting to file a Flawed Certificate of Limited Partnership will only make the process longer and more costly as it leads to additional filings with the Secretary of State and excavation into your whole business filing process. It is important to avoid mistakes during this step. Legal advisors will have all the forms necessary to file your LP in Delaware , and will make sure that these forms are filled out correctly and contained all necessary information.