Has entrepreneurship been a lifelong dream of yours? Have you spent years honing your craft and mastering your industry, all with the hope that one day you would launch your own business? If you have done the necessary background of scouting the market and designing a comprehensive business plan, you may be on the doorstep of a lucrative proposition–owning and operating a successful enterprise. Not every business is structured the same, however, and some lines of work warrant different consideration than others. It is with this in mind that you may want to learn more about forming an LLP.
An LLP, formally known as a “limited liability partnership”, is a legal entity that provides a useful designation for certain business owners. If you think an LLP could be right for you, there are a number of things to consider. Beyond the simple question of, When an LLP is formed who files the initial paperwork? There are tax and partnership relations to think about. Read on to learn more about limited liability partnerships.
Understanding the Concept of a Limited Liability Partnership
Partnerships are not uncommon in the business world. If you think about it, on paper, partnerships often make sense. They allow you to share the financial burdens and risks that come with starting a business. Even the peace of mind in knowing you are not in it alone can help you stay focused on your goals. In a professional sense, a partnership with one or more others can allow you to utilize the expertise of other minds in your field.
A “general partnership” is a sort of catch-all term for when two or more people go into business together. In some cases, a partnership is established with simply a handshake and an understanding of how the business will be run. In other instances, a formal profit-sharing agreement is drawn up by an attorney to protect the partners involved. In certain situations, however, a limited liability partnership makes the most sense from a business formation standpoint.
In an LLP, a central tenet to its purpose is the idea of “limited liability.” As an LLP is a legal entity, it establishes that the partners who own it share limited liability in the event of a lawsuit or bankruptcy. As you may be able to surmise, this is a sound maneuver if you are seeking to protect your personal financial health while operating a business.
Different states have different requirements for LLPs, and not all states offer them. In some places, such as California and Nevada, licensed professionals like doctors and attorneys are only allowed to form LLPs and cannot opt for their conceptual cousins–limited liability companies, or “LLCs” for short.
LLPs make sense for professionals because they allow partners to evenly share management responsibilities, while also shielding individual parties from the negligence of others. While in an LLC, members are exempt from the liabilities of debts and lawsuits, in an LLP, a partner is only responsible for their own actions.
Who Files the Paperwork?
If you have decided that an LLP is the right avenue for your business, you will need to complete some basic paperwork with your local jurisdiction. Again, this will depend on the state in which you are starting your business, but most often this can be done by any of the partners involved. You will want to have your partnership agreement clearly defined before you submit your LLP registration form to your state’s Secretary of State office.
A limited liability partnership also offers uniquely beneficial tax benefits to business owners. The Internal Revenue Service (IRS) treats LLPs as “pass-through” entities. What that means is that the profits generated by your business are not taxed, but rather you pay income tax on your own salary and/or profits. In simpler terms, you can think of this as a situation where you are taxed once, as opposed to certain corporate structures, where a business is taxed twice.
Your state may have certain reporting requirements you will need to adhere to as a part of your LLP formation. You will want to consult with local regulations and perhaps an attorney before filing your LLP paperwork.
Form Your LLP Online Today
Chances are, if you are starting a business, you have a lot on your plate. You may feel as if there is much to be done and simply not enough hours in the day to do it. Tracking down all the paperwork for forming an LLP and mailing it to your state’s appropriate office may seem daunting in how much time it will take. Fortunately for you, there is an easier way.
At the Corporation Center, we are a private service that helps business owners such as yourself file their LLP registrations online. Using easy-to-complete web forms, you can submit your business filings online in just a matter of minutes. To learn more about how we can help you, contact one of our helpful customer service agents today.