Organization of a Virginia Partnership
In the Commonwealth of Virginia, a Partnership is organized under Virginia Statutes §50-73.79 et seq. for Partnerships (the “Virginia Uniform Partnership Act”) and §50-73.1 et seq. for Limited Partnerships (the “Virginia Revised Uniform Limited Partnership Act”). Today, however, with the introduction of the more popular and fluid Limited Liability Company, Partnerships have lost most of their allure. As a result, they are not as often the best choice when selecting a business entity.
Forming a Partnership in Virginia and the U.S.
After the appropriate state agency has approved your Certificate, the next step is to have a skilled business attorney draft the highly recommended Partnership Agreement between the partners. The Partnership Agreement describes in detail such considerations as the structure and governance of the company, how the company is operated, partner disputes, succession plans, and dissolution procedures.
The Partnership is a separate entity unto itself. Deriving its authority from both common law (de facto Partnership) and state statutes, the Partnership is a traditional business entity controlled and operated by two or more persons with the common interest to transact business together for profit. It has the power to do things that an individual can do, such as purchase land and enter into contracts. It even has its federal identification number, similar to an individual having a social security number. There are two main, distinctive types of Partnerships, General Partnerships (GP) and Limited Partnerships (LP). In General Partnerships, the partners typically share in the profits of the Partnership and its debts and obligations. There are two types of partners in an LP: a ‘general partner’ and ‘limited partner(s).’ The general partner in an LP, which can be an entity, takes on the debts and liabilities of the Partnership. In contrast, the limited partner(s) are only liable for their initial contribution (investment) to the LP.
Consequently, LPs are generally more advantageous to form over a GP as it allows the majority of its partners to receive the benefit of liability protection, allowing its limited partners the ability to shield their assets and, in most circumstances, from business creditors and individuals (or other business entities) who seek remedies stemming from the negligence or wrongdoings of the Partnership. This protection, however, may be pierced (“Piercing the Veil”) if the Limited Partnership does not take the necessary steps to ensure that the entity is separate from its limited partners and that the general partner, if an entity, is adequately capitalized. Consequently, it is essential to speak to a skilled business attorney who can advise you on maintaining your company’s liability protection.
Federal Tax Considerations for a Partnership
After your Partnership Agreement has been drafted, approved, and signed by all partners, it is vital to register for an Employer Identification Number (EIN), also known as a Federal Tax Identification Number, with the Internal Revenue Service. A skilled business attorney, or tax attorney, can file an EIN on your LLC’s behalf by having you sign a Form SS-4 authorizing the attorney as a Third Party Designee to act on your behalf. The EIN will not only be used for tax purposes but also to open bank accounts in the Partnership’s name and for employee considerations. It is also important to note that if your Certificate of Limited Partnership was filed in the Commonwealth of Virginia, you should register your organization with the Virginia Department of Taxation.