How to Form an LLP
The Limited Liability Partnership (LLP) has been a popular choice among entrepreneurs since it combines the advantages of both a partnership firm and a corporation into a single entity.
Decide where to register: State criteria for joining a limited liability partnership differ, and some jurisdictions provide greater benefits than others. The small business administration has information on various state filing requirements. If they are still undecided about where to register their LLP, speak with a lawyer about which state is ideal for their company based on state standard operating procedures and tax legislation.
Register with your chosen state: Professionals must file an LLP with a governmental agency â€” generally the secretary of government’s office and pay a registration fee, which varies from state to state. In California, for example, forming an LLP costs plus a $15 service fee. The filing fee in New York is $200. They must provide their company’s name while completing the registration application.
Get an employer identification number: A nine-digit identification number is awarded to LLPs for taxation purposes. Any business that operates as a partnership must have one, according to the IRS.
Create a partnership agreement: A legal document containing all the terms and conditions of the partnership is a limited liability partnership agreement. The partnership agreement should spell out each partner’s responsibilities, how revenues and losses will be shared, how participants can quit the LLP, and how to terminate the partnership.
Getting proper licenses and permits for business: LLPs need to obtain proper licenses as per area, territory, and profession to conduct the business.
Publishing a notice in a local newspaper: To inform the public about their registration, LLPs must give a notice in a local newspaper of various regions.
Advantages and Disadvantages of LLP
The different benefits and drawbacks of an LLP are as follows:
Advantages of LLP
Limited personal liability: As a partner in an LLP, partners are only accountable for their actions and not for the activities of the other partners or the whole LLP. To put it another way, if the LLP is sued, individual assets, such as their home and car, are not at risk.
Itâ€™s a good employee motivator: Limited Liability Partnerships can regularly have many partners and add new ones.
Less paperwork than LLCs and corporations: LLP, they must first register their partnership deal with their state and a registration fee and write a partnership agreement. Unlike limited liability companies and corporations, they would not need to prepare articles of incorporation or a board of directors.
Disadvantages of LLP
Regulations vary by state: Each state has varied LLP filing regulations, making deciding where and how to form one difficult.
Partner and LLP insurance plans are expensive: Because partners are accountable for their obligations, therefore, they must have their liability insurance independently. In some places, premiums for particular medical specialties have been more than one lac dollars per year. The LLP requires insurance as well; in Massachusetts, LLPs are required to have liability insurance with minimum per-claim and aggregate limits.