A partnership is type of business structure made up of two or more people acting as co-owners of business for profit. Whether you did or did not intend to create partnership, the behavior between you and others may establish a partnership under law. Different type of partnerships may have general partners, limited partners, or both. A limited liability partnerships (LLP) is partnership where all of the partners are limited partners. Usually, limited partner is liable for the wrongful actions of the partnership to extent of his ownership share. However, in a LLP every partner enjoys the benefit of protection from all wrongful acts, debts, and obligations of the LLP.
A partnership agreement (Agreement) provides the rules for running a LLP. The Agreement must state the partnership is forming a limited liability partnership. Additional requirements to form a Delaware LLP are:
- You must create a partnership agreement;
- You must have two or more partners named in the Agreement;
- You must fill out a Statement of Qualification form;
- You must register your LLP with the Office of the Delaware Secretary of State;
- You have a maintain a state required amount of liability insurance; and
- You must get an Employer Identification Number (EIN) for tax purpose (even if the LLP does not have employees).
To form and register you LLP in Delaware, you must complete a Statement of Qualification. You can download the Statement form from the Delaware Government Division of Corporations webpage. Once you complete the form, you must file it with the Delaware Secretary of State. The Statement of Qualification must include:
- The name of the LLP;
- The registered office street address of the LLP;
- The name of the agent for service of process who receives legal document from the Delaware Secretary of State;
- The business address of the agent for service of process, which must be the same as the registered office street address’
- The number of partners of the LLP as of the time you complete the Statement of Qualification; and
- The date the LLP begins or a delayed time if it is different from the filing date.
If the agent for service of process is a person, he must be a resident of Delaware.
A LLPs enjoy the benefit of “pass-through taxation”, which allows the LLP to pass its income tax obligations to the partners. The partners are responsible for the LLP income tax based on their shares in the business. They report and pay the taxes on their personal tax returns.
Under Delaware law, LLPs are separate from their partners. A partner involved in wrongful or negligent acts are personally responsible for the acts, but LLP protects the other partners from responsibility from the those acts. Partners also receive protection form the errors, legal fault, and negligence of the LLP.
LLP must file an annual report with the Delaware Secretary of State every year on June 1 beginning with the year after the Statement of Qualification (SOQ) of the LLP goes into effect. If you do not file your annual report, the state revokes your SOQ. Revoking the SOQ turns your LLP into a regular partnership.
The annual report must include:
- The name of the LLP;
- The state where the LLP formed;
- The number of partners as of the date of filing the annual report; and
- The address of the registered office and agent.
A partner is an agent of the LLP. Therefore, acts a partner does in the name of the LLP or in the ordinary course of business becomes the responsibility of the LLP.
When one of the partners dies, the LLP automatically ends. The other parents can start the business as a new LLP, but the current LLP does not continue.
If you think you’ll need help forming your LLP, then contact a Delaware business lawyer today to make sure you don’t miss any important steps to form your LLP.