It is said that taxes are one of the only certainties in life. Every year, Americans scramble to get their returns submitted to the Internal Revenue Service (IRS) before April 15. Depending on your situation, your taxes can range from relatively simple and straightforward, to extremely complex and detailed affairs. If you are a business owner, you know that staying on top of your taxes is both complicated and hugely important. Maybe you outsource your tax matters to an accountant, or you do it in-house–regardless, making sure you are in good standing with the IRS is paramount. Different business structures also face different tax implications, and a limited liability partnership (LLP) has its own set of considerations.
How you decide on the business structure that is right for you will depend on many factors. If you are early in the process of setting up and establishing your enterprise, it is a sound decision to learn more about the options available to you. Taxes can be costly, and setting your business up to handle them as smartly as possible can better position you and your organization to economically thrive.
Why Establish a Limited Liability Partnership?
If you have spent any amount of time in the business world, you have probably seen the letters “LLC” following the name of an organization. An LLC is a limited liability company, and though it is different from an LLP, they do share the concept of limited liability. In a limited liability partnership, individual members–or partners–can shield their personal assets from liabilities incurred by the business. Most commonly, these liabilities include bankruptcy and other legal matters.
With a limited liability partnership, there is, however, room for one partner to take on liability. Say there is a medical practice where three doctors are partners. If one doctor is sued for medical malpractice, only he or she will be deemed liable. The other two partners will not risk their own financial positions, and they can maintain the viability of the business.
This structure of limited liability that allows for individual accountability makes sense for certain lines of work. Beyond doctors, LLPs are particularly popular among dentists, accountants, architects, and lawyers. In fact, in some states, licensed professionals are only afforded the option of LLPs.
The Tax Implications of a Limited Liability Partnership
If you and your partners are providing a professional service, and you are interested in forming an LLP, you may want to familiarize yourself with what that entails from a tax standpoint. A limited liability partnership is viewed as a “pass-through” entity by the IRS. What that means is that income generated by the business “passes through” to individual partners before it is taxed. Another way to put it would be that the profits of the business itself are not taxed, but rather the income of its members is subjected to federal and state taxes.
Because of their “pass-through” status, both LLCs and LLPs are popular choices of structure for business owners. LLCs, in fact, are incredibly common. Some corporate structures, while affording other benefits that LLPs do not, are actually taxed twice–once as a business, and once on a member level. Again, it is wise to understand the tax consequences of all business formation types.
How Can You Form an LLP?
If you have decided that the tax implications and structure of an LLP is right for your business, you can proceed with forming a limited liability partnership. In order to do this, you will first want to make sure that you are eligible to do so. Then, you will want to select a unique name for your business. After that, you will want to apply for all necessary business licenses and designate a registered agent. The role of a registered agent is to receive all service of process documents for legal matters.
With all of that in-place, you can then file your certificate of limited liability partnership. This document should be completed with your local Secretary of State’s office. In this certificate, you will be asked to include some relevant information about you, your business, and your partners.
You may also find it helpful to draft a partnership agreement. Having a legally-binding document that clearly outlines a profit-sharing structure, as well as the responsibilities of each partner, can make it easier to operate your business.
Submit Your LLP Registration Online Today
As a business owner, your free time is scarce. At the Corporation Center, we understand that entrepreneurs face demanding schedules, and any avenue for creating efficiencies is appreciated. With that idea in mind, we provide a diverse array of online forms for business owners in all 50 states. Whether you are seeking to form an LLP, LLC, or S-Corp, we can help you complete the documents you need in just a few minutes. To learn more, contact one of our helpful customer service agents today.