When you start a business you can choose from several types of business structures. The structure you choose determines how the business will be taxed, if you are personally responsible for the business’ debts, and more.
If you are going into business with others, you may consider forming a partnership. Partnerships offer simple tax filings and, in some cases, liability protection. Mississippi offers three types of partnerships, detailed below.
Types of partnerships: Liability & tax considerations
The Internal Revenue Service has information on its site regarding federal partnership tax issues.
Most partnerships are considered pass-through entities. This means the income from the company passes through to the owners’ personal income. In Mississippi there is no separate tax form required for partnerships, but the state may ask for an annual report or “informational return.” For information about federal taxes, see the Internal Revenue Service website.
Personal liability is the other important topic to consider when forming a business. Liability refers to how many of your personal assets can be seized when the business has to settle a debt. The reverse is true as well, meaning your business assets may be used to settle your personal debts.
The types of partnerships offered in Mississippi are compared below, with information highlighting the differences in liability and tax considerations.
General partnership (GP)
A general partnership offers no liability protection, meaning partners in GPs are liable for any and all debts incurred by the partnership, regardless of which partner created them. When it comes to taxes, GPs are pass-through entities with all the income tax liability passing through to individual partners to deal with on their personal returns. This means the GP doesn’t have to file any tax returns.
Limited partnership (LP)
Limited partnerships offer two types of partners: limited and general partners. General partners are fully liable for all business debts while limited partners are typically not liable beyond their monetary investment in the LP. Typically, the limited partners have little say in how the partnership is ran. This partnership structure is great when there are some investors that want to act as silent partners, staying out of business operations while still earning a profit.
Each partner pays income tax on the revenue they derive from the LP on their personal tax returns.
Limited liability partnership (LLP)
Limited liability partnerships protect general partners from business liabilities created by other partners and/or employees. Some states limit the amount of protection LLPs offer partners. This means if one partner suddenly incurs a lot of debt, such as through a lawsuit, the other partners will not typically be personally liable for the debt.
GPs and LLPs are taxed in the same way. LLPs may have more fees and/or paperwork each year.
Limited liability companies
Creating a Limited Liability Companies (LLC) is another way to start a Mississippi business. LLCs offer fantastic liability protection, but require more effort and money to form in addition to allowing owners less personal control over the business.
How to form a partnership in Mississippi
After the choice of entity has been made, there are a number of mandatory steps to go through before your business can open its doors.
Step 1: Select a business name
Pick a name that appeals to customers, bearing in mind that it can be changed in the future to meet the changing needs of your business. The name typically must include the choice of entity (LP, LLP, etc.).
Step 2: File trademark on business name (optional)
Look through Mississippi’s Business Database to verify the availability of your desired business name. Once you confirm it’s not taken, protect the name by recording it with the Mississippi state government.
Step 3: Complete required paperwork
In Mississippi, partnerships almost always need to register with the state, pay a filing fee, and file the required paperwork. Foreign businesses may have further and/or different requirements.
General partnerships (GP): GPs may file with the state if doing business under a fictitious name. Be sure to always record partnership agreements to avoid legal complications due to misunderstandings.
Limited partnerships (LP): LPs must file a Certificate of Limited Partnership with the state in order to operate in Mississippi.
Limited liability partnerships (LLP): LLPs must turn in a Statement of Qualification of an LLP with the state.
Step 4: Determine if you need an EIN, additional licenses or tax IDs
If you plan on hiring employees, you’ll need to get an Employer Identification Number (EIN) from the IRS. Even if you aren’t hiring employees, an EIN is helpful for opening business bank accounts, credit cards, and more. It’s highly recommended you get one from the IRS.
Some partnerships need licenses from the state in order to do business. For example, plumbers, electricians, and other types of contractors usually need to be licensed to do business. Additional taxes may also be needed.
Step 5: Get your day-to-day business affairs in order
Once the Secretary of State has approved your paperwork and sent you a certified, stamped copy of the paperwork back, you’re able to do business. Here are a few things to consider as you get started with your business:
You’ll need to open a bank account in your business’s name to keep your liability protection intact (if your partnership type offers liability protection).
You’ll need a physical address where the business can receive mail and legal notices.
Make sure you have a partnership agreement on hand. This is a document that outlines how the partnership will be ran and includes details such as how to deal with partners that leave, adding new partners, changing the business, or shutting the business down.
LegalZoom will help you choose which partnership may be right for you. We can also file the paperwork to form your business, help you find a registered agent, and get you in touch with an attorney or tax professional.