The limited liability partnership, or “LLP”, form of business is designed to protect one partner from the negligence or misconduct of another. For this reason the LLP model is often the preferred form of business for licensed professionals such as lawyers and accountants, but the partners can be non-professionals as well. The partners in the LLP do, however, remain obligated to pay for most of the ordinary debts and obligations of the LLP.
While one partner may be protected from liability for the negligence of another, each partner shares in the management. In Connecticut, the basic requirements for forming an LLP is the filing of a set of required forms and identification of a registered agent is required.
Like many states, Connecticut has chosen to follow the Revised Uniform Partnership Act in regulating partnerships, including its LLP model.
What are the Requirements for an LLP?
As the word “partnership” indicates it takes two or more individuals to form a LLP, and the LLP is required to file the paperwork discussed below with the Secretary of State for the state of Connecticut. These are the only requirements of an LLP. LLPs, as with most partnership forms of business, are designed to be relatively easy to form and operate.
The forms that must be submitted to the Secretary of State require that certain information be provided. So, the representative of the partnership who is submitting the paperwork would want to have the LLP’s federal Employer Identification Number (EIN), its business address, each partner’s full name and contact information, and the name of one partner or a third party who is the LLP’s registered agent. A registered agent is the person responsible for receiving legal documents, e.g.service of process if the partnership is sued, so many businesses name their attorney as their registered agent.
What Paperwork Do I Need to Form an LLP?
An LLP needs to file a number of forms and reports with Connecticut state offices during its lifetime. These forms include:
- Certificate of Limited Liability Partnership: This document is the initial document that establishes the LLP. It must be filed with the Secretary of State of Connecticut. There is a $120 filing fee;
- Certificate of Amendment: This form needs to be filed when major changes occur, such as the switch to a new form of business;
- Change of Agent: If the registered agent for service or the agent’s address should change, this would need to be reported to the Secretary of State on the appropriate form,
- Change of Business Address: If the main business address changes, this must be reported on the appropriate form;
- Renunciation of Status Report: This is filed when an LLP is winding down its business operations;
- Application for Reservation of Name: This form is used when the LLP is set up to hold a name for it. The name of a limited liability partnership must end with one of these designations, Limited Liability Partnership, L.L.P., or LLP.
- Application for Cancellation of a Reserved Name: If a company, including an LLP, no longer wants to use a certain name, it would file an Application for Cancellation of a Reserved Name.
In addition to filing forms and reports required by the state, people who want to establish an LLP would probably want to draft a limited liability partnership agreement. This agreement would define the role and responsibilities of each member in the partnership.
In addition, the agreement could spell out each member’s contribution of assets to the partnership and that these assets may not be used to pay the debts of another member. Also the agreement could state the protection from liability that extends to each member in the event another member commits a negligent or wrongful act. Finally, the agreement could state each member’s liability for the normal debts incurred during the operation of the LLP.
A complete partnership agreement would also address what would happen in the event a partner wants to exit, e.g. whether their share would simply lapse or whether it would be transferred to a new partner and how that partner would be chosen. Other issues that a partnership agreement could address would be how to end the partnerships, what would happen if a partner passes away and whether and how it could be expanded.
Working with an experienced Connecticut business lawyer would help the group forming the partnership initially to identify all of the issues that a complete partnership agreement should address.
Another necessary step is to apply to the Internal Revenue Service (IRS) for a federal Employer Identification Number (EIN) and open a business bank account for the LLP. The application for an EIN can be filled out online and submitted electronically. Once the EIN is received, it can be used to open the bank account.
What Benefits Does Connecticut Give to an LLP?
First of all, it is really fairly easy to set up an LLP in Connecticut. Another important advantage is that LLPs, like all partnerships, are taxed only at the personal income level. The income is taxed on its income only one time when each partner files his or her respective personal taxes.
As discussed above, the partners of a LLP are not liable for the negligent misconduct of other partners. Therefore, the LLP model is advantageous for lawyers, accountants and other professionals. If one partner becomes liable for negligence, the other partners are usually not affected.
The LLP structure allows each partner to have the right to manage the business and to have flexibility in defining their role in its operations. The LLP partners have lots of freedom in determining how the LLP is to be managed. The LLP partners can agree to delegate daily business operations to a managing partner or to a committee of partners.
Or, if the partners prefer, they may decide to divide up the duties associated with the operation based upon expertise, experience, or personal interest. Again, this is an issue which a good LLP agreement would address so each partner knows what to expect and what their role is.
What Disadvantages Does Connecticut Give to a LLP?
While one partner of a LLP is not liable for the negligence, professional or otherwise, of the others, they are still liable for the debts and obligations of the LLP that arise during the LLP’s normal course of business. For example, the partners of the LLP would all be liable for an office lease agreement entered into by the LLP.
Should I Hire a Business Lawyer?
An experienced Connecticut corporate lawyer can explain all of the technicalities of liability and formation of an LLP. Your attorney would also be able to draft a complete partnership agreement that reflects the needs of your partnership. Your partnership will be prepared for all eventualities and the future if you consult an experienced Connecticut business lawyer when setting it up.