When you start a business one of the first things you’ve got to decide is which business structure your business will take. Each structure offers different combinations of tax advantages, liability protection, and other unique advantages. This article will help you understand how partnerships differ in Wyoming so you can choose the one that may be best for you.
Types of Partnerships: Liability & Tax Considerations
Two important topics to consider when you are forming a business are taxation and personal liability. In Wyoming partnerships are generally taxed as pass-through entities, meaning the profit and losses from the businesses pass directly into the partners’ personal incomes.
Partnership taxes are typically paid on the partners’ tax returns, but Wyoming has no individual state income tax so it generates tax revenue in other ways. Partnerships may be required to file annual reports. The Internal Revenue Service offers information on some of the federal taxation requirements for partnerships.
Personal liability is the other important topic to consider when forming a business. Liability refers to how personally responsible you are for your business’ debts and obligations. If you are fully liable for your business’s debts then your personal assets such as property or savings, can be used to settle outstanding business debts. Some partnerships offer limited liability, protecting your assets from some types of debts.
The types of partnerships offered in Wyoming are compared below, with information highlighting the differences in liability and tax considerations.
General Partnership (GP)
General partnerships have one class of partner, general partners. General partners are totally liable for all the business’s debts. GP partners account for GP revenue on their personal returns. This means GP partners’ tax liability may be reduced due to Wyoming have no individual state income tax.
Limited Partnership (LP)
Limited partnerships offer two classes of partners: limited and general partners. Limited partners in LPs have no liability beyond their investment in the business, while general partners retain full liability for all business debts.
LP partners (whether limited or general) account for revenue from the LP on their personal returns.
Limited Liability Partnership (LLP)
Limited liability partnerships are a form of general partnership in which the partners are protected from business debts they did not participate in creating. For example, if one partner is involved in a lawsuit that is his own fault, the other partners will not be personally liable for damages from that suit. These partnerships are popular with high liability risk professionals such as doctors or lawyers.
LLPs are taxed in the exact same manner as general partnerships.
How to Form a Partnership in Wyoming
The following steps describe the major requirements for forming a partnership in Wyoming.
Step 1: Select a business name
Business names can be crucial to a business’s success. This is especially true in oversaturated fields of business. Pick a name that stands out in a positive way, that is catchy, and that appeals to the customers you want. Don’t forget that you’ll probably need to include the entity type in the business name (LLP, LP, etc.).
Step 2: Register the business name
Search the state’s Business Database once you’ve thought of a name, just to make sure it hasn’t been taken registered. Then protect your new business name by registering it with the Wyoming state government.
Step 3: Complete required paperwork
In Wyoming, most partnerships are required register with the state, pay a filing fee, and file the required paperwork. Out of state businesses have additional and/or different requirements.
- General Partnerships (GP) – GPs don’t need to register beyond filing an Application for Registration of Trade Name. Partnership agreements should always be recorded in writing if possible.
- Limited Partnerships (LP) – LPs must file a Certificate of Limited Partnership to operate in Wyoming.
- Limited Liability Partnerships (LLP) – LLPs must turn in an Application for Registration 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 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. Additional taxes may also be needed, check with the Secretary of State for details.
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.
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.