Vermont Partnerships and Limited Partnerships
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Partnerships, limited partnerships and limited liability partnerships are forms of organization that can be used to pursue social objectives and are recognized as statutory entities under Vermont law. Until the advent of LLCs in 1996, partnerships were the most oft-used alternative to a nonprofit corporation in Vermont.
Partnerships provide almost unlimited flexibility in governance and management. Profits and losses are allocated according to the capital contributions of each partner but unlike LLCs and nonprofit corporations, the total assets of each partner in a general partnership are at risk, not just the capital that has been put into the enterprise. Limited partnerships changed this by permitting the creation of a special class of partners, known as “limited” partners, who provide capital but do not participate in management. In limited partnerships, the limited partners are shielded from liability beyond their capital contributions, but the general partner—who manages the affairs of the limited partnership—does not have this liability protection. Limited partnerships are often used as financing vehicles and are most useful when investors are to have no role in management and a simple or flexible governance structure is needed.
Limited liability partnerships (LLPs) function like general partnerships but provide extra protections for the general partners. Such protections include personal immunity for liability arising from the negligence and wrongful acts of other partners, unless the other partners were under their direct supervision. Thus, a partner’s loss with respect to the LLP is usually limited to his or her investment in the partnership. General Partnerships
Under Title 11, Chapter 22 of Vermont statute, a general partnership may be formed whether or not the persons intend to form a partnership. The partnership will be formed if there is an association of two or more persons to carry on as co-owners of a business for profit. Thus, there is no required filing to be made with the Secretary of State. However, a partnership agreement may be filed, and if it is, it must include certain details. These include: the name of the partnership and the names and addresses of all partners and the registered agent. If the main office is located outside of Vermont, the address of that office and the Vermont office must also be included. At least two partners must sign the agreement and it must be notarized. The partnership may also be required to file a trademark registration if it is doing business under a name other than the name of its general partners. If the partnership agreement is filed, the filing fee is $50.
Each partner is an agent of the partnership for the purposes of its business. Therefore, each partner can act to bind the partnership with respect to matters within the ordinary course of the partnership’s business. Also, all property acquired by a partnership is property of the partnership and not of the partners individually.
For income tax purposes, all income and losses generated by a general partnership are passed through to the partners, whether or not the profits are actually distributed to the partners. The partnership itself pays an annual Vermont tax of $250. Limited Partnerships
To form a limited partnership, a certificate of limited partnership must be filed with the Vermont Secretary of State. The certificate must include: the name of the limited partnership, the address of its office, the name and address of its agent for service of process, the name and business address of each general partner, the name and place of residence of each limited partner and their value contributed to the partnership, and the latest date upon which the partnership is to dissolve. The filing of this certificate must include payment of a $50 filing fee. As described above, the general partners typically manage the day-to-day affairs and operations of the partnership, while the limited partners usually do not participate in its management. In fact, any such involvement by a limited partner may make that partner jointly and severally liable for the debts of the partnership, much like a general partner.
Similar to general partnerships, all profits and losses generated by the partnership are reportable by the partners on their individual tax returns. The partnership itself pays the same $250 annual tax to the state.Limited Liability Partnerships (LLPs)
As of 1999, any Vermont partnership may become a limited liability partnership. To do so, the partnership must file a statement of qualification with the Secretary of State. This form must include the partnership’s name, its location, and its election to be an LLP, among other things. LLPs must also file annual reports with the Secretary of State and pay a fee. If the annual report is not filed in a timely manner between January 1 and April 1, the LLP could be terminated. The primary benefit of a Vermont LLP, as described above, is that the partners in an LLP will not have personal liability for the debts of the partnership. Thus, if a partnership suffers financially, the partner’s interest in the partnership may become worthless, but the partner does not have to worry that his other personal assets will be seized to satisfy the LLP’s debts. This is similar to the liability shield that shareholders have in corporations.Resources
11 V.S.A. Chapter 22 (Chapter on general partnerships and limited liability partnerships).
11 V.S.A. Chapter 23 (Chapter on limited partnerships).
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