Partner LLC: Everything You Need to Know
A partner LLC is an ideal business structure for most partnerships. 4 min read
2. Partnerships vs. LLCs
3. Formation of Partnerships and LLCs
4. Liability for Partnerships and LLCs
A partner LLC is an ideal business structure for most partnerships. Setting up an LLC for your business comes with many benefits regarding taxes and business liability that are very appealing for entrepreneurs.
Partnerships vs. LLCs
A number of new businesses that have more than one owner should consider whether or not they want to operate as a partnership or an LLC. There are two forms of partnerships; they are limited partnerships and general partnerships.
A general partnership includes two or more people that agree to voluntarily own and operate a for-profit business whereby they share an equal amount of management duties as well as profits and losses.
A limited partnership consists of a minimum of one general partner that finances and manages the business along with at least one additional limited partner that provides capital to the partnership.
LLCs provide a combination of both corporations and partnerships. Most states have adopted laws that regulate the two forms of partnerships, as well as LLCs. A business owner must also think about insurance and other liability protection needs to prevent any issues with personal assets.
Formation of Partnerships and LLCs
Forming a partnership or an LLC requires a similar process. They are both formed by registering in the state where you plan to conduct business. Partnerships are a business type that have several co-owners. They are registered with the state. There are many different partnership types. Your desires regarding your profession and the desires of the owners will dictate which type you choose.
They are different than a corporation, which will issue stock. Partners will share the profits and losses from the business that will be dependent on their ownership percentage. Ownership percentage of each partner can vary, just as long as it equals 100%. Partners will determine the share when they form the business. This will be an important component of the partnership agreement.
General partnerships may be formed in many different ways, both formal and informal. It can be done orally or in writing, or it can be done by pooling cash resources and sharing the management duties of the business.
Though you do not have to, it is best to have a written agreement outlining the business ownership with the partners, known as articles of partnership. It will outline the rights and duties of every partner and will decrease the likelihood of any litigation among partners. Some states will require that you file a certificate of partnership to show that your partnership exists.
Limited partnerships are established more formally in most states. You will file a certificate of partnership with your Secretary of State.
Much like general partnerships, the general and limited partners can file articles of limited partnership to lay out the roles and obligations of the partners with regard to business operation.
Similar to partnerships, LLCs have to be formed within a specific state. To form an LLC, you will need to do the following:
· File articles of organization with your Secretary of State’s office
· Include the words “limited liability company” or “limited company” in your business name, or an abbreviation of one
· Include the purpose of the business in your articles.
· Include the business address, name and address of your registered agent, the contributions of capital of all members, whether or not the LLC may add members later, and the names and addresses of those who will manage the LLC
LLC owners are referred to as members. They function using an operating agreement that outlines the percentage of ownership of each member and answers any what-if questions surrounding the business.
When you form an LLC with several members, an operating agreement is ideal. It outlines how the company is to be managed and how the profits are dispersed. It also outlines how the LLC can be dissolved.
Though it is not required in most states, LLCs can draft an operating agreement that will put to rest any potential conflict between members.
Liability for Partnerships and LLCs
The single biggest difference in partnerships and LLCs is the liability protection. Both limited and general partnerships have personal liability because they are in charge of the management of the business.
General partners are liable for their conduct as well as those of the other general partners. This is referred to as joint and several liability. On the flip side, limited partners are only risking their financial contributions in limited partnerships. This is similar to shareholders or members of LLCs. If a limited partner helps manage the business or signs a personal guarantee for their business, they can be held liable for any business obligations.
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