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. Nebraska offers two types of partnerships, detailed below.
Types of Partnerships: Liability & Tax Considerations
Most partnerships are considered pass-through entities. This means the income from the company passes through to the owners’ personal income. In Nebraska some partnerships may require you to file an annual informational return with the Nebraska Department of Revenue. 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 are able to 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 Nebraska 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 for 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 Companies
Nebraska also allows the formation of Limited Liability Companies (LLCs) which are sometimes considered quasi-partnerships. If you are interested in LLCs click here for further information.
How to Form a Partnership in Nebraska
If you decide to create a partnership in Nebraska, there are a few steps to go through in order to properly establish the business.
Step 1: Select a name for your partnership
There is a lot of room for creativity offered when choosing a partnership name. One requirement is that the type of entity be included in the name of the business. An example of this would be an LP by the name of ‘Johnson Gadgets.’ The full name of the business could be ‘Johnson Gadgets, LP.’
You will need to confirm that the name you would like for your business is available. You can do so by checking directly with the Secretary of State.
Step 2: Register business name
After you have confirmed that the name you would like to use is available, you will need to register that name with Secretary of State.
Step 3: File organizational documents with the Secretary of State
Depending on the type of partnership you form, you will have to file organizational documents with the Nebraska Secretary of State. These relatively uncomplicated documents inform the state of what type of business you wish to establish and how you would like it to be structured.
Formal documents are not required in order to form a general partnership in Nebraska but business owners are encouraged to have a written partnership agreement.
In Nebraska, a limited partnership must file a Certificate of Domestic/ Foreign Limited Partnership with the Secretary of State. There are different forms for domestic or foreign partnerships in Nebraska. A foreign partnership is a partnership formed in another state but does business in Nebraska.
In addition to filing the necessary paperwork, business owners must pay the required fees to properly establish their partnership.
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 additional 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.
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 in tact (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.
Want to start a partnership? LegalZoom will help you choose which one 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.