Limited liability partnerships (LLP) are businesses in which two or more people, called partners, carry on as co-owners of a business for profit. LLPs are general partnerships that elect to change their status to a limited liability partnership. Businesses choose to form as LLPs because all partners have protection from the misconduct and legal faults of the LLP.
Georgia law has several requirements to form a LLP in the state:
- Your LLP must have two or more partners;
- The name of your LLP must meet the requirements under Georgia law;
- You must have a federal Employer Identification Number (EIN) – even if you do not have employees; and
- You must file a limited liability partnership election to change your general partnership to a LLP.
To become a LLP, you must complete and file a document called a Limited Liability Partnership Election (Election). The Georgia Secretary of State division does not provide an election form to download. You must write one yourself or hire an attorney to write one for you. The Election must include:
- The name of your LLP;
- A statement of the business, profession, or other activity the LLP;
- A statement that the partnership elects to be a limited liability partnership; and
- A statement that the LLP and its partners authorizes the Election.
Unless all partners agree otherwise, the LLP must sign the Election one of the following ways:
- Signatures of the majority number of partners; or
- Signature of one or more of partners with the authority to sign.
After completing the Election, you must file the document in the Office of the Clerk of the Superior Court of any county the LLP has an office.
One of the major benefits of a LLP is the “pass-through” taxation, which allows LLPs to pass their income tax obligations to the partners. Each partner pays the LLP tax equal to the percentage of their share in the business. The partners pay the tax on both their federal and state tax returns. The LLP is not responsible to pay federal income tax or the Georgia net worth state tax.
Other benefits of LLPs in Georgia are:
- Not having to file an annual report;
- Not having to renew the Election;
- Flexibility in business ownership as a partner (You can actively manage the business or just have a financial interest.); and
- All partners have protection from the legal fault, misconduct, and creditors of the LLP.
With many benefits of a LLP, there are also disadvantages. Unless there is an agreement, partners do not have consult with the other partners when they make decisions for and about the LLP.
Although an LLP protect every partner from personal liability for the obligations and faults of the LLP, a partner is personally responsible for his personal misconduct. His personal assets, money and property, are not protected from creditors or other legal obligations.
If you are trying to form a LLP, then contact an experienced Georgia corporate lawyer today to understand your right and obligations as a partner in your limited liability partnership.