In Iowa, there are different partnership structures that offer different advantages. Find out about the different partnerships available in Iowa, how to start one, and more.
Find out more about Forming a Partnership
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by Mary Wenzel, J.D.
Mary is a freelance writer and owner of Write Law. Mary ghostwrites marketing content for law firms throughout the Un...
Updated on: December 8, 2023 · 6 min read
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. Iowa offers three types of partnerships, detailed below.
Partnerships in Iowa are considered pass-through entities. This means the partnerships pay no business tax in Iowa, but the income from the partnership is passed on to the owners’ personal income, where it is then taxed as income.
Partnerships in Iowa may have to file annual reports with the state of Iowa. 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. Personal liability refers to how personally responsible the owners are for the business’ debts and obligations. Some partnership structures offer liability protection for their owners, allowing them to shelter their personal assets from the business. For example, if your partnership loses a lawsuit and has to pay a huge settlement, personal liability will help protect your house, cash, and savings from the settlement. This protection will not apply in all cases, such as if you owe taxes, commit fraud, or do something that violates the partnership’s liability protection.
The types of partnerships offered in Iowa are compared below, with information highlighting the differences in liability and tax considerations.
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. Some aspects to be aware of:
Limited partnerships are similar to general partnerships, but offer two levels of partners: limited and general partners.
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 who 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.
In a limited liability limited partnership, you find a blend of LP and LLP advantages. An LLLP has both general and limited partners, but they are all protected from each other’s debts, errors, and legal obligations. Like an LLP, the LLLP is popular with high-risk professions that also seek outside investment.
If you need additional taxation choices or greater protection from personal liability, you may want to consider forming a limited liability company (LLC). The LLC business structure combines many of the advantages of partnerships while offering greater flexibility in tax structures. On the downside, they often require more effort to maintain than a partnership, but even then, they are known for their simplicity.
Once the entity type has been decided on, there is a process business owners must go through before they can start serving customers in Iowa.
Business names should be unique, strong, and appealing to the business’s target market. Pick one that reflects your business values and that will attract customers. Bear in mind your business name must include the entity type (LP, LLP, and LLLP).
Search Iowa’s state business database to see if the name you want is available. If it is, you can protect your business name by filing it with the Iowa state government.
To be a legitimate Iowa business, partnerships must pay a filing fee, and file the required paperwork. There may be additional forms and/or fees for out-of-state businesses.
Partnerships regularly need an Employer Identification Number (EIN) from the IRS. An EIN is helpful for partnerships that aren’t hiring employees as well. They are used to open bank accounts for the business, enter some contracts, and file some tax paperwork.
Additionally, some businesses require additional licenses from the state in order to operate. Additional taxes may also be mandated.
Once the right paperwork is filed, and the state confirms that your business is authorized to open its doors, check to make sure these business basics are in place:
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.
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