Partnerships are one of the most commonly formed business entities. Unlike a general partnership, partners in a limited liability partnership (LLP) are not personally liable for some of the business’ financial obligations. Professional service firms (such as law and accounting firms) frequently forms as LLPs. However, in Massachusetts, most businesses can register as an LLP.
The process of forming a limited liability partnership varies from state to state. In Massachusetts, the Corporations Division of the Secretary of State is responsible for the registration of limited liability partnerships.
- What are the Requirements for a Limited Liability Partnership in Massachusetts?
- What Paperwork Do I Need to form a Limited Liability Partnership?
- What Benefits Does Massachusetts Give to a Limited Liability Partnership?
- What Disadvantages Does Massachusetts Give to a Limited Liability Partnership?
- Should I Hire a Business Lawyer?
Unlike some states, most businesses can become an LLP in Massachusetts. However, you must have at least two partners (a sole proprietor cannot form an LLP). If you perform professional services (such as law, accounting, or architecture), you must form as a professional limited liability partnership (PLLP).
If your partnership operates under an assumed name (something other than the partners’ surnames), you must register the business’ name with the state. Additionally, you must designate your business’ limited liability partnership status by putting “LLP” after its name.
In Massachusetts, LLPs are not required to designate a registered agent. However, you may do so voluntarily. A registered agent is authorized to accept important documents (like paperwork initiating a lawsuit) for your business. If you need help selecting a registered agent, a business lawyer can help you with the process.
To create a limited liability partnership, you must file registration with the Secretary of State. Unlike many states, Massachusetts does not provide registration forms for limited liability entities. If you need help drafting an LLP registration, contact a lawyer.
Your registration must provide the following information on your registration form:
- Your partnership’s Federal Employer Identification Number,
- The name of your partnership,
- The partnership’s street address (which must be within Massachusetts),
- The brief statement of your LLPs purpose or business type
- Your principal business address,
- The signatures of at least one partner.
You can choose to include other information, including the names and addresses of your partners and your registered agent. (You may have to file additional paperwork if you plan on operating your business under an assumed name.)
In addition to your state filing, you should consider drafting a partnership agreement. A partnership agreement defines the rights and responsibilities of your partners. For example, a partnership agreement may set out the procedures for distributing profits, adding partners, or terminating the partnership. Having a written partnership agreement can prevent extended litigation if a dispute occurs.
Limited liability partnerships have specific benefits. First, an LLP does not have to pay income taxes. Instead, its income passes through to its partners (who must report this income to the IRS and pay taxes).
And, you may not be personally liable for the LLP’s debts or your partners’ negligence and misconduct. In other words, your personal assets cannot be used to collect the partnership’s debts unless you personally guarantee payment.
Massachusetts does not protect LLP partners from all business liabilities. You may still be personally liable if you engage in misconduct, are negligent, or personally guarantee a debt. If you form a limited liability partnership, you should seriously consider purchasing liability insurance to help offset this risk.
If you are concerned about liability, consider creating a limited liability company (LLC) or S corporation instead. These business entities may offer owners additional protection. However, different rules and procedures apply to LLCs and corporations in Maryland. A business lawyer can help you decide which business structure is best for you.
While completing a form is a simple process, a lot more goes into the structuring of a limited liability partnership. For example, you should create a legally binding partnership agreement, should evaluate liability insurance policies, and may have ongoing reporting and legal obligations. A Massachusetts business lawyer can help you follow the correct procedures and protect your financial interests.