Limited Partnership & Minnesota's Limited Partnership Act

Limited Partnerships

A limited partnership is a type of partnership in which a limited partner is not personally liable for the partnership’s obligations solely by reason of being a limited partner. Minnesota limited partnerships are governed by Chapter 321, the Uniform Limited Partnership Act (2001). Beginning January 1, 2005, no one may use the older Chapter 322A to form an entity, and since January 1, 2007 Chapter 321 has governed pre-existing Minnesota limited partnerships, except those formed under Chapter 322 that have not elected to convert (Minn. Stat. § 321.1206), so any older reference to Chapter 322A no longer states the controlling law.

Under that act, “[a]n obligation of a limited partnership . . . is not the obligation of a limited partner,” and a limited partner “is not personally liable . . . for an obligation of the limited partnership solely by reason of being a limited partner” (Minn. Stat. § 321.0303).

A Minnesota limited partnership must have at least one general partner and at least one limited partner: the statute defines a limited partnership as “an entity, having one or more general partners and one or more limited partners, which is formed under this chapter” (Minn. Stat. § 321.0102(11)). The same definition adds that the term “includes a limited liability limited partnership,” so the limited partnership form also encompasses the LLLP variant discussed below.

Each general partner has “equal rights in the management and conduct of the limited partnership’s activities” (Minn. Stat. § 321.0406(a)), and all general partners are jointly and severally liable for the obligations of the limited partnership (Minn. Stat. § 321.0404(a)). Two limits on that liability matter when you are choosing a structure. First, if the partnership elects to be a limited liability limited partnership (LLLP), an obligation incurred while it is an LLLP “is solely the obligation of the limited partnership,” and a general partner “is not personally liable . . . solely by reason of being or acting as a general partner” (Minn. Stat. § 321.0404(c)). Second, a person who joins an existing limited partnership as a general partner “is not personally liable for an obligation of a limited partnership incurred before the person became a general partner” (Minn. Stat. § 321.0404(b)).

General partners run the business, and a limited partner generally takes no part in day-to-day management. That non-participation is a structural feature of the form, not the price of the liability shield. Under current Minnesota law you do not forfeit limited liability by participating: a limited partner is not personally liable “even if the limited partner participates in the management and control of the limited partnership” (Minn. Stat. § 321.0303). The older “control rule,” under which a limited partner could lose the shield by taking part in control, was abolished when Minnesota adopted the Uniform Limited Partnership Act (2001).

Regulatory Requirements

Like a general partnership, a limited partnership may need business licenses, federal and state tax identification numbers, and, if it operates under a name other than its legal name, registration of that assumed name.

If you hire employees, you generally must register for a Minnesota unemployment insurance employer account (Minn. Stat. § 268.042, subd. 1) and insure payment of workers’ compensation for them (Minn. Stat. § 176.181, subd. 2). Family employment is the common exception, and it runs the opposite way from what many owners assume: hiring a relative often takes the work outside these requirements rather than automatically inside them. The spouse, parent, and child (regardless of age) of a partner engaged in the business are excluded from mandatory workers’ compensation coverage (Minn. Stat. § 176.041, subd. 1(5)), and employment by a son, daughter, or spouse (and of a child under 18 by a parent) is noncovered employment for unemployment insurance (Minn. Stat. § 268.035, subd. 20(18)). Whether coverage is required turns on the specific family relationship, not on a flat rule that family status is irrelevant. An excluded family member is not shut out of protection: the partnership may elect to provide workers’ compensation coverage anyway (Minn. Stat. § 176.041, subd. 1a).

You must file a certificate of limited partnership with the Secretary of State before doing business; the mechanics are in the next section.

If you plan to sell interests in the limited partnership to the public, you likely must register the offering with the federal Securities and Exchange Commission under Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e, and, at the state level, with the Minnesota Department of Commerce under the Minnesota Uniform Securities Act. It is unlawful to offer or sell a security in Minnesota unless the security is a federal covered security, is exempt, or is registered under Chapter 80A (Minn. Stat. § 80A.49). A limited partnership interest is a “security” for this purpose, and the same act defines the “Administrator” as “the commissioner of commerce,” confirming that the state filing goes to the Department of Commerce (Minn. Stat. § 80A.41). The word “likely” is deliberate, because the same statute supplies two off-ramps: an offering escapes full Minnesota registration if the interests are federal covered securities (a notice filing substitutes for registration) or if the offer or transaction is exempt under Minn. Stat. §§ 80A.45 to 80A.47 (for example, a private placement). A public offering usually cannot use these off-ramps, but a private or exempt placement can. Consult legal counsel on securities law well before any offering to confirm it complies with federal and state law.

Certificate of Limited Partnership

To form a limited partnership in Minnesota, you deliver a certificate of limited partnership to the Secretary of State for filing (Minn. Stat. § 321.0201). The content requirements once lived in Minn. Stat. § 322A.11, which was repealed in 2004; § 321.0201 is now the controlling provision. The certificate must state: the partnership’s name (which must comply with Minn. Stat. § 321.0108); the street and mailing address of the initial designated office and the name and address of the initial agent for service of process; the name and address of each general partner; whether the limited partnership is a limited liability limited partnership; and any additional information required by article 11 (Minn. Stat. § 321.0201(a)). A fillable certificate is available from the Secretary of State.

The limited partnership is formed when the Secretary of State files the certificate, provided there has been substantial compliance with those content requirements (Minn. Stat. § 321.0201(c)). If the certificate specifies a delayed effective date, formation occurs on that later date, but no later than the 30th day after the certificate is filed (Minn. Stat. § 321.0206(c)).

Beyond the certificate, you may also adopt a limited partnership agreement. As with a general partnership agreement, the limited partnership agreement governs the internal details of the partnership and the arrangement between the general partners and the limited partners. Discuss the issues to address in that agreement, along with securities law requirements and tax consequences, with legal counsel.

To become a limited liability limited partnership, you do not separately form a limited liability partnership. In Minnesota an LLLP is a single-step election: the limited partnership states in its certificate of limited partnership that it is a limited liability limited partnership (Minn. Stat. § 321.0201(a)(4)). The statute defines a limited liability limited partnership as “a limited partnership whose certificate of limited partnership states that the limited partnership is a limited liability limited partnership” (Minn. Stat. § 321.0102(9)). A new limited partnership makes the election in the certificate it files at formation; an existing one makes it by amending its certificate to add that statement.

Foreign Limited Partnerships

If your limited partnership was formed in another state or country and does business in Minnesota, it must register here as a foreign limited partnership by applying to the Secretary of State for a certificate of authority (Minn. Stat. § 321.0902). This replaced Minn. Stat. § 322A.70, which was repealed in 2004. The application must state the partnership’s name, the state or jurisdiction under whose law it is organized, its principal-office address, the name and address of its Minnesota agent for service of process, each general partner’s name and address, whether it is a foreign limited liability limited partnership, and that it has complied with the organizational laws of the jurisdiction in which it is organized (Minn. Stat. § 321.0902).

Current law does not require you to attach a certificate of good standing or certificate of status from the home state. What the statute requires instead is a statement within the application “that the foreign limited partnership has complied with the organizational laws in the jurisdiction in which it is organized,” not an attached certificate (Minn. Stat. § 321.0902). The Secretary of State then files the application and issues the certificate of authority (Minn. Stat. § 321.0904).

Registering matters for more than paperwork. A foreign limited partnership transacting business in Minnesota “may not maintain an action or proceeding in this state unless it has a certificate of authority” (Minn. Stat. § 321.0907). If you do not register, you cannot bring or maintain a lawsuit in Minnesota courts until you obtain the certificate.

A foreign limited partnership doing business in Minnesota also must obtain a Minnesota Tax ID Number if it withholds Minnesota income tax from employees’ wages or files a Minnesota partnership return (Minnesota Department of Revenue, Minnesota Tax ID Requirements). If it has employees, it must register for an unemployment insurance employer account (Minn. Stat. § 268.042, subd. 1) and insure payment of workers’ compensation for them (Minn. Stat. § 176.181, subd. 2), subject to the same family-employment exclusions discussed above.

CREDITS: This post began as an excerpt from A Guide to Starting a Business in Minnesota, provided by the Minnesota Department of Employment and Economic Development, Small Business Assistance Office, Twenty-eighth Edition, January 2010, written by Charles A. Schaffer, Madeline Harris, and Mark Simmer. It has been updated to reflect Minnesota’s Uniform Limited Partnership Act (2001), Minn. Stat. ch. 321.

This post is also part of a series of posts on forming a business in Minnesota.