When you start a business you can choose from several types of legal 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 requirements and, in some cases, liability protection. New Hampshire offers three types of partnerships, detailed below.
Taxes and personal liability
Most partnerships are considered pass-through entities. This means the income from the company passes through to the owners’ personal income. In Nevada there is no separate tax form required for partnerships. For information about federal taxes, see the Internal Revenue Service website.
Even though there is no requirement to file a separate tax return, partnerships in New Hampshire are required to file informational returns each year to inform the state of their revenue. This can be done at the New Hampshire Department of Revenue’s website. Forming a partnership in New Hampshire may be particularly appealing because the state has no personal income tax.
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 New Hampshire are compared below, with information highlighting the differences in liability and tax considerations.
General partnership (GP)
The simplest form of a partnership, the general partnership offers no liability protection but also isn’t hindered by very many laws, offering maximum freedom to do business as you wish.
- No liability protection, each partner is personally liable for all of the company’s debts
- Your personal assets, such as your home or cash, can be seized to settle business debts
- Income from the business passes through to your personal income, where it is taxed as income
- Exempt from a lot of rules regarding how the business should be named, ran, and maintained—no need for lots of complicated paperwork
Limited partnership (LP)
Limited partnerships are similar to general partnerships, but offer two levels of partners: limited and general partners.
- Limited partners are not allowed to manage the day-to-day operations of the business, but enjoy personal liability protection
- Limited partners are only liable for the money they’ve invested into the company
- General partners are fully liable for the business debts, but they control the day-to-day operations
- Taxed as a pass-through entity, like a general partnership
- Very popular with partnerships that want to attract outside investors that typically act as limited partners, protecting them from the company’s debts and obligations
Limited liability partnership (LLP)
In a limited liability partnership partners can’t be held liable for other partners’ mistakes, errors, or outright fraud. These types of partnerships are very popular with professionals that expect to take on a lot of liability risk (typically as the result of lawsuits), such as doctors and lawyers. For example, if three doctors start an LLP and one of them is sued for malpractice and loses a costly lawsuit, the other doctors won’t be personally liable to pay off that debt.
- Similar to a general partnership, but each partner is only liable for their investments like a limited partner in an LP
- Each partner is protected from the other partners’ debts and obligations
Limited liability companies
If you decide that you want more liability protection than partnerships offer and are willing to tolerate less control and more regulation of your business, consider forming a limited liability company (LLC). While slightly more complicated to form and run, an LLC typically offer more liability protection than partnerships due to their quasi-corporate structure.
How to form a partnership in New Hampshire
If you decide to form a partnership in New Hampshire, there are a few required steps to through in order to make the partnership legitimate. Additionally, some businesses must obtain a business license and/or permit before starting their operation.
Step 1: Select a business name
Choosing a business name can be a fun process. Entrepreneurs get the chance to think about names that appeal to their potential clients while also reflecting the best parts of their business. While there are some restrictions, the two most important are that the business name must be unique and that it must contain the type of entity it is. For instance, a limited partnership named “Smith Tools” could be called “Smith Tools, LP.”
Step 2: Register the business name
Business owners should check to make sure the name is available in the Secretary of State’s Business Database. After that’s done. you should then protect your unique business name with the New Hampshire Secretary of State.
Step 3: Complete required paperwork
In New Hampshire, all partnerships except for GPs require the appropriate paperwork be filed along with the current filing fee.
General partnerships (GP): While GPs aren’t required to file paperwork with the state, it’s encouraged that they create a written and recorded copy of their partnership agreement. Recording the partnership agreement can help to prevent discord and misunderstandings between the partners.
Limited partnerships (LP): In New Hampshire, a LP must file with the Secretary of State.
Limited liability partnerships (LLP): New Hampshire law also requires LLPs to file with the Secretary of 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 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. Further taxes may be required as well, depending on your 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 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.
When you are ready to start your 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.