Partnerships are common in the business world. It is not unusual for coworkers or colleagues with a shared interest to venture out on their own. While a partnership is beneficial in the sense that it allows you to lean on the knowledge and expertise of others in managing your business, it can also help you offset some of the risk involved. Let’s face it, one of the greatest deterrents for prospective Alabama business owners is the possibility of failure. Working with one or more partners can allow you to mitigate some of the financial risk involved in starting your enterprise, as well as presenting the opportunity to share management responsibilities. If you are thinking about forming your own business, you may want to learn about how to create an Alabama LLP.
“LLP” is shorthand for Limited Liability Partnership, and it is just one partnership structure that is available in Alabama. Before you go the route of forming an LLP, however, it is a sound business strategy to know their pro’s and con’s, as well as the other partnership options that are possible.
Understanding the Basics: What is a General Partnership?
Any time two or more individuals go into business together, this is considered a General Partnership (GP). At a very basic level, a GP can be formed via handshake or verbal agreement, making it a rather informal affair. Sometimes, though, members of a GP will opt to have an attorney assist them in creating a legally-binding profit-sharing agreement.
While a GP offers flexibility in many ways, it provides little to nothing by way of legal protection. To put it another way, if your business goes bankrupt or faces a lawsuit due to the malfeasance of your partner, your personal assets can be seized to recoup these costs. You will need to weigh whether or not liability is more of concern than a lack of rigidity and paperwork when deciding on a GP.
A Limited Partnership
A Limited Partnership (LP) is essentially a step up, legally speaking, from a general partnership. In an LP, owners are allowed to designate their members into two different groups: general and limited partners. General partners in an LP assume full liability for the business’s debts, and in turn they have full control over daily operations. Limited partners are shielded from liability, but they do not get a say in day-to-day management.
Like other partnerships, LPs are taxed as “pass-through” entities. That means that the profits of the business pass through to the partners before they are taxed. LPs are popular for businesses that seek outside investors, as it allows them to be a part of the business without sacrificing liability or facing the burden of daily management duties.
A Limited Liability Partnership
Limited Liability Partnerships (LLPs) are especially favored by licensed professionals. Doctors, accountants, architects, dentists, and lawyers often opt to form LLPs when they go into business together. The reason for this is due to the inherent benefit of “limited liability”. In this context, partners in a business cannot be found liable for the actions of other members. As an example, if one doctor in a medical group is sued for malpractice, the other partners (and by extension, the business itself) will have their assets shielded.
Just like LPs and GPs, an LLP is a “pass-through” entity for taxation purposes. While they are available in Alabama, it is worth noting that not every state offers them. Conversely, in some states, licensed professionals are precluded from forming LLCs and can only create LLPs.
A Limited Liability Limited Partnership
The next and final layer of partnerships available in Alabama is the Limited Liability Limited Partnership (LLLP). In an LLLP, the structure is much the same as a limited liability partnership, with the added enhancement that partners can be designated as general or limited (just like in an LP). An LLLP enjoys the same “pass-through” status as other partnership structures, and is registered via the Alabama Secretary of State’s office.
Register Your Alabama LLP Online Today
Determining which partnership arrangement and structure is right for your business can depend on several factors. You will want to discuss the advantages and disadvantages of each with your partners, and potentially an attorney. If you opt for an LP, LLP, or LLLP, you can expect to navigate some paperwork. You will need to source the correct forms from the Alabama Secretary of State’s office, fill them out, package them with the necessary supplemental items, and mail them to the appropriate office location.
There is also an easier way. At the Corporation Center, we offer easy-to-fill online forms for any of your Alabama business owner needs. Take a moment to explore our website–you will see that we have a host of available documents for all 50 states. To learn more about how we can help you and your partnership, contact us today.