Can a Company Be a Partner in LLP
Can a company be a partner in an LLP is a question you may find yourself asking when deciding on which business entity to create.3 min read
Can a company be a partner in an LLP is a question you may find yourself asking when deciding on which business entity to create. In the most basic form, a partnership is a business where two or more people work together to run a business. For professionals such as lawyers and doctors, it may be advisable to take the partnership a step further and form an LLP.
What is an LLP?
An LLP, or limited liability partnership, is a business that is both owned and operated by multiple people who share the responsibilities. Many professionals choose to form as an LLP because it provides personal protection for their assets against business debt and the actions of other partners. This is important to many professional fields where lawsuits can be common and costly. It is essential to note that each partner could be held liable for their own actions even if they are not for each other.
The Pros of An LLP
There are many pros that come with forming an LLP. Some of the benefits of an LLP include:
- All partners have limited liability for their personal assets.
- LLPs provide good motivation for employees as many works to become full partners.
- You are required to file less paperwork than with a corporation or an LLC.
The Cons of an LLP
While there are many pros to forming an LLP, there are also cons to consider before choosing it as a business entity. Some of the cons of an LLP include:
- Each state has its own regulations and requirements which can make it confusing how to form one depending on the state.
- Since each partner is responsible for their own liability, the cost for their insurance policies can be extremely costly especially for some professions.
Forming an LLP
There are multiple steps when it comes to forming an LLP that you will have to go through before receiving that designation. You will need to:
- Decide where you want to register your company: The laws for forming an LLP can vary from state-to-state, so it is important to find out the state requirements from their Small Business Administration website to decide which formation laws will work best for your partnership.
- Register in your desired state: Once you have chosen the state to form, you will need to register with that state agency and file for registration along with the necessary fee.
- Obtain an EIN: For tax purpose, you will need to file for an employer identification number which can be obtained for free from the IRS website.
- Create your partnership agreement: This agreement will detail the terms that you have agreed on for how your partnership will be run.
Who Can Be a Partner in an LLP?
The state statutes where the LLP is formed will dictate which types of individuals and entities can legally be included as partners in a limited liability partnership. In general, a partnership can form with two or more persons who agree to be co-owners of a business. Under this definition a "person" can refer to:
- An individual.
- A corporation.
- A business trust.
- A partnership.
- An association.
- A joint venture.
- The government.
- A subdivision of government.
- An agency.
- Or any other legal or commercial entity.
An S Corporation as a Person
An S corporation is basically a corporation that has elected a special s designation to pass the income through the shareholders and avoid double taxation. To qualify as an S corporation, there are restrictions on the number and type of shareholder. In fact, a partnership cannot be an owner in an S corporation though an S corporation is allowed to be considered a "person" entering into a partnership.
A Corporation as a Partner
A corporation has the ability to be a partner in a general partnership as they are not considered legal structures but more or less formal arrangements between two people doing business. A corporation is often considered a "person" in almost any situation. When a corporation becomes a general partner, they are then open to full liability under that arrangement but are shielded from personal liability as shareholders in a corporation.
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