Partnerships, LPs and LLPs in the USA: How They Work, How to Open One, and What They Cost a Foreign Owner

A partnership is two or more people carrying on a business together for profit. It comes in three shapes in the United States — general partnership, limited partnership (LP) and limited liability partnership (LLP) — and they differ in one thing above all: who is on the hook when things go wrong. WHAT THEY ARE A general partnership can be created by accident: no filing, no agreement, no registration. If two people run a business together and share the profit, most states treat them as partners, with the default rules of the state partnership act filling in everything they never discussed. An LP is a registered entity with two classes of owner. The general partner manages the business and carries unlimited liability. Limited partners are investors: liability stops at what they contributed, provided they stay out of management. This is the classic fund and real-estate structure. An LLP is a registered partnership in which every partner is shielded from the malpractice and, in most states, the ordinary debts of the firm and of the other partners — the standard form for law and accounting firms. An LLLP adds a corporate-style cap for the general partner of an LP. WHERE THE NAMES COME FROM "Partner" is from the Old French parçonier and the Latin partitionem, "a division", from partir, "to divide": partners divide the profit, and originally the loss and blame too. "General" comes from generalis — the partner with general authority, and therefore general liability. "Limited" is the legal promise that a passive partner's exposure stops at their investment. The form is medieval in origin (the Mediterranean commenda, the French société en commandite), codified in the US by New York in 1822 and Pennsylvania in 1836, then standardised by the Uniform Limited Partnership Act of 1916. The LLP is far newer: Texas created the first one in 1991, after the savings-and-loan crisis, so professional partners would not lose their homes over a colleague's mistakes. HOW TO OPEN ONE General partnership: write a partnership agreement (not required, always worth it — capital, splits, decision rights, exit, disputes), get an EIN, open a bank account in the partnership's name, register for state and local taxes where you operate. LP or LLP: draft the agreement, appoint a registered agent with a street address in the formation state, then file the certificate of limited partnership (LP) or statement of qualification (LLP). Delaware charges USD 200 for an LP and about USD 300 per partner for an LLP; an LLLP is roughly 300 per partner. Then get an EIN, bank, and register as a foreign entity in any other state where you operate. Check professional licensing rules — some professions cannot practise through an LP. HOW TO RUN IT Pass-through taxation; the partnership itself pays no income tax. - Form 1065 by 15 March (calendar year), with a Schedule K-1 for every partner. - Each partner reports their share on their own return and pays tax on it whether or not cash was distributed. - General partners are usually treated as self-employed, so the 15.3% self-employment tax applies to their share. Limited partners' shares generally are not — the point of the structure. - Keep the registered agent, annual report and franchise tax alive; amend the agreement and the state record whenever partners join or leave. WHAT IT COSTS Agreement USD 0-2,000. State registration 50-500. Registered agent 50-300 a year. Annual report or franchise tax 0-300. Form 1065 and K-1 preparation 800-2,500 a year, plus 200-500 per additional state. These structures are drafted, not bought. IF YOU ARE NOT A US PERSON Two things change, and both cost money. First, unlimited liability for a general partner — fixed by making a corporation the general partner, at the price of a second entity and a second set of filings. Second, withholding: a partnership with foreign partners must withhold US tax on their share of income effectively connected with a US trade or business, generally at the highest applicable rate under section 1446, reported on Forms 8804 and 8805, and the foreign partner needs a US taxpayer identification number. The liability for getting it wrong sits with the partnership. You do not need to live in the US. A registered agent supplies the in-state address for USD 50-300 a year, and an EIN is available without SSN or ITIN on Form SS-4 by fax (4-7 business days), mail (4-6 weeks) or phone. Traditional banks usually want you in a branch; fintech business accounts (Mercury, Relay, Wise Business) accept non-residents remotely. Under FinCEN's final rule of August 2026, US-formed entities are permanently exempt from beneficial ownership information reporting — only entities formed under foreign law that register in a US state must file. For a small group of founders, an LLC does almost everything an LP does more simply. And owning a partnership interest is not a work permit: that is a visa question (E-2, L-1, O-1). THE SHORT VERSION General partnerships are free and dangerous; LPs let investors in without giving them control; LLPs protect professionals from each other. All three file Form 1065 and issue K-1s, and all three become a withholding and reporting project the moment a partner is not a US person. General information, not legal or tax advice. Rules and fees change; confirm current figures with a licensed professional before acting.