Your Guide to Business Entity Types: Limited Liability Partnership
As we continue with our blog series, Your Guide to Business Entity Types, today we are discussing limited liability partnerships. The name of this business type is quite self-explanatory, as it is a business that has two or more owners just like a partnership but can also offer the partners limited personal liability.
Read on to learn more, and if you’re in need of legal assistance or representation from an experienced business attorney, reach out to Morris Law Group in Edina today.
What Is a Limited Liability Partnership?
A Limited Liability Partnership (LLP) is a business structure in which the company is run for-profit with two or more owners. An LLP is organized in the state in which it will operate and is governed by the laws of that state. In an LLP, each partner signs the Partnership Agreement that governs the management structure of the organization, and it is taxed like a general partnership.
The Statement of Qualification
An LLP is organized by filing a Statement of Qualification with the office of the Secretary of State in the state in which it will conduct business.
Management Structure
The management structure of an LLP is the same as that of a general partnership. The partners may select a managing partner, in whom is vested the authority to make all decisions for the organization. A management committee may be composed of the partners with the authority to make all decisions. The partnership agreement will dictate whether all partners get an equal vote in managing the business, or whether each partner only has the voting power in accord with that partner’s capital contribution to the organization. If the partnership agreement is silent on the matter of voting rights, it implies that each partner has equal voting power. Whether a managing partner or committee is chosen, the partnership agreement will likely require a vote by all partners for matters outside the scope of ordinary business.
Liability
An LLP, as its title suggests, and unlike a general partnership, provides its partners with limited liability*. The partners in an LLP are not personally liable for the obligations of the organization. An LLP is a general partnership, in form and function, that has chosen to add limited liability for the partners by filing the appropriate paperwork as noted above.
Taxes
As for taxation, the IRS treats an LLP the same as a general partnership. A general partnership is usually taxed under subchapter K of the Internal Revenue Code and consists of provisions designed for the taxation of a business organized as a partnership. Under this subchapter, a general partnership is not required to pay federal income tax, but allocates its profits or losses to the partners as assigned by the partnership agreement, and is then reported on the partners’ personal federal income tax return.
Learn More About Limited Liability Partnerships
Whether you’re interested in registering your business as a limited liability partnership or require legal representation or counsel in another business matter, Morris Law Group is here to help. Reach out to our team of experienced Edina business attorneys today to get started with a free consultation. Serving the Minneapolis, Saint Paul and Western Wisconsin, Twin Cities Minnesota metro area.
* Liability does not extend for acts of negligence, wrongful acts, or misconduct.