How to Start a Limited Partnership in Illinois | A Step-by-Step Guide

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Start a Limited Partnership in Illinois

A limited partnership is an attractive business structure for those who want to start an LLC in Illinois. It combines the best of both worlds, offering limited liability protection for limited partners and the ability to manage the business for general partners actively. This article will outline the steps on How to Start a Limited Partnership in Illinois, covering everything from researching and preparing to registering your limited partnership with the Illinois government and beyond.

Webinarcare Editorial Team will help you gain knowledge through thorough research and market study. Before starting your Illinois Limited Partnership, all the steps in this article must guide you.

Steps in Starting a Limited Partnership in Illinois

What is a Limited Partnership?

A Limited Partnership (LP) is a business structure comprising two types of partners: general and limited. It is a legal entity distinct from its partners and combines certain features of partnerships and corporations.

General partners are responsible for the day-to-day management of the business, make decisions on behalf of the partnership, and have unlimited liability for the partnership’s debts and obligations. This means their assets can be seized to cover the partnership’s liabilities if necessary.

Limited partners, on the other hand, are passive investors who do not participate in business management. They provide capital to the partnership and receive a share of the profits in return. Their liability is limited to the amount they have invested in the partnership, meaning that their assets are generally not at risk for the partnership’s debts beyond their investment.

It is suggested that you speak with a legal professional before you begin setting up your limited partnership in Illinois. They’ll understand what’s best for you and your company. To safeguard your personal assets from business debts, you can always start an LLC rather than a limited partnership.

– WEBINARCARE EDITORIAL TEAM

Steps in Starting a Limited Partnership in Illinois

To form a limited partnership in Illinois, you must consider following the below guidelines that, include research and preparation, establishing the limited partnership structure, drafting the limited partnership agreement, registering the limited partnership, complying with additional Illinois requirements, and ongoing management and compliance and reporting requirements. 

Step 1: Research and Preparation

Before starting a limited partnership in Illinois, you must familiarize yourself with this business structure’s laws and regulations. In the United States, limited partnerships are primarily governed by the Uniform Limited Partnership Act (ULPA). However, each state has its laws and regulations, so it’s essential to know the specific rules that apply in Illinois.

While researching, consider whether a limited partnership is the most suitable structure for your business needs. Limited partnerships are ideal for businesses with one or more passive investors who want to avoid taking on the business’s day-to-day responsibilities. Consider alternative structures like Illinois Corporations if a limited partnership doesn’t seem right.

Step 2: Establishing The Limited Partnership Structure

Once you’ve determined that a limited partnership is the right choice for your business, the next step is to establish the structure of your partnership. This involves choosing a name, hiring a Registered Agent, and determining the roles of the partners.

Choose a Name for the Limited Partnership

The name you choose for your limited partnership is essential to your business identity. In Illinois, there are specific requirements that your limited partnership name must meet, such as including the words “Limited Partnership” or the abbreviation “LP.” Before settling on a name, conduct Illinois Business Name Search through the Illinois Secretary of State Corporation/LLC Search to ensure the name you’ve chosen is available and not already used by another business.

Naming requirements for a Limited Partnership in Illinois may include:

  • The name must be unique and distinguishable from other business entities registered in the state.
  • The name must include the words “Limited Partnership,” “L.P.,” or “LP.”
  • Certain words and phrases may be restricted or require additional approval from Illinois.

If the limited partnership name is available, you may choose to reserve it for a specific period of 90 days by filing a name reservation application and paying the online name reservation fee of Not available and mail name reservation fee of $300. If your corporation plans to operate under a name other than its legal name, you may also need to register a fictitious or “doing business as” (DBA) name. 

The DBA filing can be done by three methods, online, by mail, and in person filing., which costs around $50. In addition, the DBA’s validity in Illinois is Indefinite, which you can file in Illinois Secretary of State.

You can check out how to file a DBA in Illinois for clearer understanding.

Hire a Registered Agent

A Registered Agent is a person or entity responsible for receiving legal documents and official notices on behalf of your LP. In Illinois, your Registered Agent must:

  • Be a resident of Illinois or a business entity authorized to do business in the state
  • Have a physical address in Illinois (P.O. boxes are not acceptable)

Choosing a reliable and responsible Registered Agent is essential, as failure to receive and respond to legal documents can seriously affect your business. 

You can serve as your own Registered Agent or appoint a friend or family member, or hire a professional Illinois Registered Agent Services. With that, we reviewed some of the best-registered agent services and provided features as an add-on with their formation packages for you to check out.

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Determine the Roles of the Partners

A limited partnership consists of two types of partners: general and limited. General partners are responsible for the day-to-day management of the business and have unlimited liability for the partnership’s debts and obligations. Limited partners, on the other hand, are passive investors who don’t participate in the management of the business and have limited liability up to the amount they’ve invested in the partnership.

As you structure your partnership, carefully consider who will take on the roles of general and limited partners. Remember that general partners will have more responsibility and potential liability, so choose those individuals wisely.

Step 3: Drafting the Limited Partnership Agreement

With the partnership structure established, the next step is to draft a limited partnership agreement. This document sets forth the partnership’s terms and conditions and should be carefully crafted to ensure it meets all legal requirements in Illinois.

Include Essential Elements

A well-drafted limited partnership agreement should include the following essential elements:

  •  Name of the limited partnership
  •  Purpose of the limited partnership
  •  Duration of the limited partnership
  •  Names and addresses of general and limited partners
  •  Capital contributions of each partner
  •  Allocation of profits and losses
  •  Management and decision-making structure
  •  Process for admitting new partners

Address Optional Elements

In addition to the essential elements, it’s a good idea to address the following optional elements in your limited partnership agreement:

  •   Transfer of partnership interests
  •   Withdrawal or removal of partners
  •   Dissolution and winding up the process

To ensure your limited partnership agreement is legally sound and compliant with Illinois laws and regulations, it’s advisable to seek legal advice from a Business Attorney in Illinois with experience in limited partnerships.

Step 4: Registering the Limited Partnership

Once your limited partnership agreement is in place, the next step is to register your limited partnership with the Illinois government. This process typically involves filing a Certificate of Limited Partnership with the Illinois Secretary of State’s office.

Prepare and File the Certificate of Limited Partnership

To file the Certificate of Limited Partnership, complete the required forms, which can typically be found on the Illinois Secretary of State. Include all necessary information and signatures, and pay the filing fee of $150.

Obtain an Employer Identification Number (EIN) from the IRS

After registering your limited partnership with the Illinois government, you’ll need to obtain Illinois Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This number is used to identify your partnership for tax purposes and is required for filing federal and state tax returns.

The application of an EIN can be through the following:

  • Apply Online- The online EIN application is the preferred method for customers to apply for and obtain an EIN.
  • Apply by Fax- Taxpayers can fax the completed Form SS-4 application to the appropriate fax number), after ensuring that Form SS-4 contains all of the required information.
  • Apply by Mail- The EIN application Form SS-4 can be filed via mail. The processing time frame to receive the mail is four weeks.
  • Apply by Telephone-International Applicants – International applicants may call 267-941-1099 (not a toll-free number) from 6 a.m. to 11 p.m. (Eastern Time) Monday through Friday to obtain their EIN.

After you have your EIN, you can benefit in several ways. It will give your LLP the absolute advantage necessary to operate at full capacity without encountering legal or judicial issues.

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Register For Illinois Taxes

Depending on your business activities and location, you may need to register for certain Illinois taxes. Check with the Illinois Department of Revenue or a tax professional to determine which taxes apply to your limited partnership.

Step 5: Complying With Additional Illinois Requirements

In addition to registering your limited partnership with the Illinois government, there may be other requirements you need to meet to operate your business legally. These may include obtaining business licenses or permits, filing annual reports with the Illinois Secretary of State, and maintaining proper records and documentation.

Obtain Any Necessary Business Licenses or Permits.

Depending on the nature of your business, you may need to obtain various licenses or permits from state or local authorities. Check with the Illinois Department of Business and Industry or a licensing professional to determine which licenses and permits apply to your limited partnership. However, in Illinois, the costs of Illinois Business Licenses range from $50 – $300.

You can check out the United States Business License & Licensing Fee Resources for more information about the costs in Illinois.

File Annual Reports 

Illinois require limited partnerships to file Annual Reports with the Illinois Secretary of State’s office. These reports typically include updated information about the partnership, such as the names and addresses of partners and any changes to the partnership agreement. 

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Maintain Proper Records and Documentation

As a limited partnership, it’s essential to maintain proper records and documentation, including copies of your limited partnership agreement, tax returns, financial statements, and any other relevant documents. These records should be kept in a safe and accessible location and may be required in the event of an audit or legal dispute.

Step 6: Ongoing Management and Compliance

Starting a limited partnership in Illinois is the beginning. To ensure the ongoing success of your business, it’s crucial to stay on top of management and compliance tasks. It is better to have regular meetings with your partners to ensure everyone is on the same page regarding the direction and performance of your business. These meetings can also help identify and address issues or concerns before they become more significant problems.

As a limited partnership, you must file annual tax returns and pay any required taxes at the federal and state levels. Consult with a tax professional to ensure you comply with all tax laws and deadlines.

Advantages of Limited Partnerships in Illinois

Here are some key advantages of forming a limited partnership in Illinois:

  • Limited Liability for Limited Partners: One of the main benefits of a limited partnership is that limited partners enjoy limited liability protection. This means their assets are generally not at risk for the partnership’s debts and obligations beyond their investment in the partnership. This limited liability can be attractive for investors who want to participate in a business venture without taking on the same level of risk as general partners.
  • Pass-through Taxation: Limited partnerships are typically subject to pass-through taxation, meaning the partnership’s profits and losses flow to the partners’ individual tax returns. This structure avoids double taxation, as the partnership is generally not subject to federal income tax. Instead, each partner is responsible for paying taxes on their share of the partnership’s income at their individual tax rate.
  • Flexibility: A limited partnership allows for flexibility in the management structure. General partners have the authority to make decisions and manage the business, while limited partners can remain passive investors. This division of responsibilities and decision-making power can appeal to both parties. It allows general partners to maintain control over the business operations and limited partners to invest without being involved in day-to-day management.
  • Ease of Formation: A limited partnership is typically less complicated and expensive than a corporation. Limited partnerships generally require filing a Certificate of Limited Partnership with the state and creating a limited partnership agreement, which is less complex than the documentation required for a corporation.
  • Attracting Capital: Limited partnerships can attract capital from investors who want to participate in a business venture without taking on the responsibilities and risks of being a general partner. This structure can help businesses secure funding while allowing limited partners to benefit from the partnership’s profits.
  • Continuity of the Partnership: In Illinois, limited partnerships can continue to exist even if one of the general partners dies, withdraws, or is replaced, as long as there is at least one remaining general partner. This continuity can provide stability and help ensure the ongoing success of the partnership.

Can a Foreign Limited Partnership Do Business in Illinois?

Yes, a foreign Limited Partnership can do business in Illinois by registering as a foreign LP with the Illinois Secretary of State or appropriate state agency. The foreign LP must provide a certificate of good standing from its home state and pay any required registration fees.

What are the Tax Implications of Forming a Limited Partnership in Illinois?

Limited Partnerships are generally considered pass-through entities for tax purposes, meaning that the profits and losses of the business are passed through to the individual partners, who report them on their personal income tax returns. However, specific tax implications may vary depending on the state and the nature of your business. It is recommended to consult with a tax professional to determine your specific tax obligations.

FAQs

What is a limited partnership in Illinois?
A limited partnership in Illinois is a legal business structure where one or more general partners manage the business and are personally liable for the partnership’s debts, while one or more limited partners contribute capital investment but have limited liability.
Who can start a limited partnership in Illinois?
Any person or legal entity, like a corporation or partnership, can start a limited partnership in Illinois.
How do I register a limited partnership in Illinois?
To register a limited partnership in Illinois, file a Certificate of Limited Partnership with the Illinois Secretary of State and pay the filing fee.
What is the cost to start a limited partnership in Illinois?
The cost to register a limited partnership in Illinois is $151.25 for filing the Certificate of Limited Partnership plus any applicable local and state business license fees.
How long does it take to start a limited partnership in Illinois?
The processing time for registering a limited partnership in Illinois may depend on multiple factors, but typically takes 10-15 business days.
Do I need a lawyer to start a limited partnership in Illinois?
You can start a limited partnership in Illinois without hiring a lawyer, but it’s recommended to consult with one to ensure compliance with state laws and regulations.
What’s the difference between a general partner and a limited partner in an Illinois limited partnership?
General partners in an Illinois limited partnership manage the partnership, have unlimited personal liability for the partnership’s debts, and are regarded as co-owners. Limited partners contribute capital investment but have limited liability and don’t participate in managing the partnership affairs.
Are limited partnerships taxed differently in Illinois?
Limited partnerships in Illinois are not taxed as a separate entity, but instead file taxes as a pass-through entity, where income and losses are reported by each partner on their personal tax returns.
Can non-Illinois residents be general partners in an Illinois limited partnership?
Yes, non-Illinois residents can be general partners in an Illinois limited partnership, but they must have a registered agent in Illinois to receive legal documents on behalf of the partnership.
What’s the name availability requirement for an Illinois limited partnership?
The name of an Illinois limited partnership must be distinguishable from any existing names in the Illinois Secretary of State’s records, and contain the words “limited partnership.”
Do I need a business license to start a limited partnership in Illinois?
Maybe. Depending on the location and nature of the business operation, you may need to obtain a local or state business license. Contact your local or state licensing department for specific requirements.
Is there a publication requirement for Illinois limited partnerships?
No, Illinois does not require limited partnerships to publish a notice or advertisement in any public journal.
Can I dissolve an Illinois limited partnership any time I want?
Yes, you can file a Statement of Dissolution with the Illinois Secretary of State to permanently dissolve or terminate an Illinois limited partnership.
Can I change the name of my Illinois limited partnership in the future?
Yes, you can change the name of your Illinois limited partnership by filing a Certificate of Amendment of Certificate of Limited Partnership along with the filing fee.
Do I need to file an annual report for my Illinois limited partnership?
Yes, Illinois requires limited partnerships to file an annual report with the Secretary of State every year by the first day of the fifth month after the partnership’s fiscal year ends.
Can I own multiple limited partnerships in Illinois?
Yes, there is no limit to the number of limited partnerships one can own or participate in as a partner in Illinois.
Is there a residency requirement for a limited partner in Illinois?
No, there is no residency requirement for being a limited partner in an Illinois limited partnership.
Can I convert a different business structure into an Illinois limited partnership?
Yes, you can convert a different business entity, like a corporation or LLC, into a limited partnership by filing a Certificate of Conversion with the Illinois Secretary of State.
Can two limited partnerships merge in Illinois?
Yes, two or more limited partnerships can merge in Illinois by filing a Certificate of Merger with the Illinois Secretary of State.
do limited partnerships have to have an operating agreement in Illinois?
Although Illinois does not require limited partnerships to have an operating agreement, it’s highly recommended for managing and ensuring compliance with the partnership agreement among the partners.
Can a limited partner participate in the partnership’s daily operation in Illinois?
Limited partners in Illinois are typically restricted from participating in the partnership’s daily operations unless explicitly approved in the partnership agreement or assumed full general partner responsibility.
Can I sell my ownership interest in an Illinois limited partnership?
Yes, you can sell your ownership interest in an Illinois limited partnership, but typically require the approval of other partners and/or compliance with the partnership agreement.
Do I need to hire employees in Illinois for my limited partnership?
Hiring employees for a business operated as a limited partnership in Illinois may depend on the nature and size of the business. Contact the Illinois Department of Labor for employment and labor law requirements.
Can I change my registered agent for an Illinois limited partnership?
Yes, you can change the registered agent for an Illinois limited partnership by filing a Statement of Change of Registered Agent and/or Registered Office with the Secretary of State.
Can I withdraw as a general or limited partner from an Illinois limited partnership?
Yes, you can withdraw from an Illinois limited partnership, but the requirements and terms may differ according to the partnership agreement and state laws and regulations.
Can I file the Certificate of Limited Partnership online in Illinois?
No, Illinois does not allow filing the Certificate of Limited Partnership online currently. File your initial documents via mail, fax, or in-person.
Can I reinstate a dissolved Illinois limited partnership?
Yes, you can reinstate a dissolved or terminated Illinois limited partnership by filing a Revocation of Voluntary Dissolution or Certificate of Reinstatement with the Illinois Secretary of State, plus applicable fees.
How can I obtain a copy of my Illinois limited partnership’s filing documents?
You can request a copy of your Illinois limited partnership’s filing documents by contacting the Illinois Secretary of State’s Office and submitting the appropriate request form and fee.
How many partners do I need to start a limited partnership in Illinois?
You need at least one general partner and one limited partner to start a limited partnership in Illinois.
Are there any residency requirements for partners in an Illinois limited partnership?
No, there are no residency requirements for partners in an Illinois limited partnership.
How do I register an Illinois limited partnership?
To register an Illinois limited partnership, you need to file a Certificate of Limited Partnership with the Illinois Secretary of State.
Do I need to file any other paperwork besides the Certificate of Limited Partnership to start an Illinois limited partnership?
No, you do not need to file any other paperwork besides the Certificate of Limited Partnership to start an Illinois limited partnership.
How much does it cost to register an Illinois limited partnership?
The filing fee for registering an Illinois limited partnership is $500.
Do I need a lawyer to start an Illinois limited partnership?
While you are not required to have a lawyer to start an Illinois limited partnership, it is recommended that you consult with one to ensure that all legal requirements are met.
Can a business be a general or limited partner in an Illinois limited partnership?
Yes, a business can be a general or limited partner in an Illinois limited partnership.
Can a non-US citizen be a partner in an Illinois limited partnership?
Yes, a non-US citizen can be a partner in an Illinois limited partnership.
How is the taxation of an Illinois limited partnership done?
In an Illinois limited partnership, the profits and losses of the partnership are passed through to the partners, who are then responsible for reporting their share of the profits or losses on their individual tax returns.
How do I obtain an Illinois business license for my limited partnership?
You may need to obtain an Illinois business license for your limited partnership depending on the type of business you plan to conduct. You can find more information on the Illinois Department of Revenue website.
How often do I need to file an Illinois annual report for my limited partnership?
A limited partnership in Illinois is required to file an annual report with the Secretary of State every year.
Can I change the partnership agreement for my Illinois limited partnership?
Yes, the partnership agreement for an Illinois limited partnership can be changed, but all partners must agree to the modification.
How many limited partnerships are allowed under Illinois law?
There is no limit to the number of limited partnerships that can be formed under Illinois law.
Are partnership agreements required for Illinois limited partnerships?
Yes, partnership agreements are required for Illinois limited partnerships.
Can I form a limited partnership in Illinois if I’m already a partner in another limited partnership?
Yes, you can form a limited partnership in Illinois even if you are already a partner in another limited partnership.
Can a limited partner participate in the management of the partnership in Illinois?
No, a limited partner is not allowed to participate in the management of the partnership in Illinois.
Are general partners liable for the debts of the partnership in Illinois?
Yes, general partners are personally liable for the debts of the partnership in Illinois.
Are limited partners liable for the debts of the partnership in Illinois?
Limited partners are not personally liable for the debts of the partnership in Illinois.
Are there any restrictions on the types of businesses that can be structured as an Illinois limited partnership?
No, there are no restrictions on the types of businesses that can be structured as an Illinois limited partnership.
Can I name my Illinois limited partnership anything I want?
You must check with the Illinois Secretary of State to ensure that your desired name is not already in use before registering your Illinois limited partnership.
How long does it take to register an Illinois limited partnership?
It takes approximately 1-2 days to process the Certificate of Limited Partnership and register an Illinois limited partnership.
Can I convert my Illinois limited partnership to another business structure, such as a corporation or LLC?
Yes, you can convert your Illinois limited partnership to another business structure, but this will require a legal process and consultation with a lawyer.
Can a general partner be removed from an Illinois limited partnership?
Yes, a general partner can be removed from an Illinois limited partnership with the consent of the other partners or by court order.
Can a limited partner sell their interest in an Illinois limited partnership?
Yes, a limited partner may sell their interest in an Illinois limited partnership, subject to the restrictions outlined in the partnership agreement.
Can an Illinois limited partnership continue to exist after the death of a partner?
Yes, an Illinois limited partnership can continue to exist after the death of a partner, subject to the partnership agreement.
How can I dissolve an Illinois limited partnership?
To dissolve an Illinois limited partnership, you must file a Certificate of Termination with the Illinois Secretary of State.
Can an Illinois limited partnership have more than one general partner?
Yes, an Illinois limited partnership can have more than one general partner.
How do I find a registered agent for my Illinois limited partnership?
You can find registered agent services online or by seeking the assistance of a lawyer.

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Conclusion

Starting a limited partnership in Illinois can be a rewarding experience, providing you with the benefits of limited liability protection for passive investors and the opportunity to manage your business actively. By following the steps outlined in this article and staying on top of ongoing management and compliance tasks, you can establish a successful limited partnership and enjoy the benefits of this unique business structure.

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