LLC Partners in Different States
LLC partners in different states can be quite common for partnerships that do business across state lines.3 min read
2. Choice of Law
4. Operating in Different States
Updated July 10, 2020:
LLC partners in different states can be quite common for partnerships that do business across state lines. Specifically, the LLC, or limited liability company, is a type of business structure that provides for great flexibility in terms of management and oversight. There are instances when LLCs join together with other business types and individuals to oversee a partnership. If this is the case, then the LLC itself is a partner in the partnership.
Unlike the typical LLC or corporation, there are no formal rules for establishing a partnership. So long as the partners hold themselves as partners by doing business with other parties, sharing profits, and sharing the overall responsibility of the business obligations, a partnership is likely established.
However, living in different states could be cause for complication when overseeing and managing the partnership, primarily due to the differing business laws in different states.
How to Prove a Partnership Across State Lines
You can prove that a partnership exists by doing the following:
- Engage in emails and phone calls with one another.
- Enter into business contracts with each other and other parties.
- Choose the state in which the business will operate.
- Obtain necessary licensing and permits.
- Hire employees who will work for the company; this further establishes credibility of the partnership itself.
- Draft a written agreement between partners.
Choice of Law
In regard to choice of law, this means that you will have to choose which state will have control over your partnership. Keep in mind that partnership law is very similar from state to state, as it is generally governed by the Uniform Partnership Act (UPA) or some variation thereof. In fact, most states, with the exception of Louisiana, have adopted either the 1914 or 1997 version of the UPA.
The UPA doesn’t have strict guidelines for how the partnership can be operated or managed. The law doesn’t limit the ability of any partner to engage in business with any other type of entity, nor does it restrict what types of individuals or businesses can become partners. It also doesn’t set geographical limitations for any of the partners. Therefore, there is still great flexibility in terms of the managing of a partnership with partners that reside in different states.
There is no formal written agreement that must be drafted in order to form a partnership. Under the UPA, if two or more persons begin co-running a business for profit, then they are operating a partnership. While there is no written requirement, it is a good idea to have a written agreement in place to prevent any potential legal disputes down the line. If a legal dispute does arise, the court will look to the applicable state law, along with any written agreements, to resolve the dispute among the partners.
Operating in Different States
If you do conduct business in more than one state, you might be required to register in that other state in order to begin doing business there. Even though there is no formal formation requirement for establishing a partnership, you will still need to register and obtain licensing and applicable permits before doing business in any state.
For example, if you create a partnership and use the business to own and operate a restaurant, you can’t simply begin selling food to patrons without the appropriate registration, licensing, and permits. If you then choose to open a restaurant in another state, you will need to obtain foreign registration in that state as well.
If you do operate in other states, you need not form a partnership in those other states. You are free to create a different type of business structure, such as an LLC or corporation among the partners. However, if this is the case, the business will need to follow the state’s requirements for formation. Therefore, the partners creating an LLC in another state will need to choose an appropriate business name, obtain a registered agent, file the articles of organization, obtain an Employer Identification Number (EIN), draft an operating agreement, and obtain additional licensing and permits if applicable.
If you need help with LLC partners in different states or forming a partnership or registering for foreign qualification in a state other than your home state, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.