A LLP or Limited Liability Partnership is a way of structuring a business that provides limited liability to its members (partners) but also the structural and tax flexibility of a partnership. The limited liability aspect of the LLP protects the assets of its limited partners from the debts, losses, and legal claims related to other individual partners and in many cases the partnership itself. Also, like partnerships, LLPs avoid taxes and organizational requirements associated with corporations.
A LLP can only be formed under state law. As a result, the requirements and protections for LLPs can vary widely from state to state. While there is a lot of flexibility in creating and structuring LLPs in Minnesota, there are a few mandatory requirements:
- Choose a Name for the LLP. This name must be different from all other business names on record at the Minnesota Secretary of State and must include either “Limited Liability Partnership,” Registered Limited Liability Partnership,” “R.L.L.P.,” “RLLP,” “L.L.P.,” or “LLP.”
- Choose a registered agent. If the LLP does not have a business office in Minnesota, then it is required to have a registered agent to make sure that any important information or any legal issues will make it to the LLP. A registered agent can be any Minnesota resident or business authorized to do business in Minnesota (must have an address in Minnesota).
- Statement of Qualification. The Secretary of State provides PDF fillable Statement of Qualification. This document requires the name of the LP, the principal office of the LP, the name of the registered agent, the chief executive office address of the LP, the signature of 2 partners, and the business address of the registered agent (if required).
- Partnership Agreement Optional. Minnesota does not require a partnership agreement but such an agreement is a good idea to resolve issues such as partner contributions, distribution of profits, partners’ authority, etc.
- Annual Renewal. Minnesota requires all LLPs to file an annual report either online or by mail.
The forms required to organize your business as a LLP can be found on the Secretary of State website. These forms and the processing fee can be filed with the Minnesota Secretary of State.
There are several reasons why you might want to structure your business as a LLP:
- Limited Liability: Like a corporation, LLPs shields the personal assets of its limited partners from the debts and legal liability of the company.
- Pass-Through Tax Entity: LLPs are taxed as a pass-through entity and avoid the double tax associated with corporations. This means that the LLP itself is not taxed. Instead, partners are taxed according to their individual tax bracket when they receive a share of the LLPs profits.
- Survivability: Unlike a general partnership, LLPs do not have to be reformed every time a partner dies.
- Late Filing: An existing general partnership can convert to a limited partnership at any time if it fulfills the requirements listed above.
- General Partner Liability: Unlike a limited partnership, LLPs do not require there to be a general partner that is liable for the actions and debts of the partnership.
While the limited liability an ability to avoid the double tax associated with corporation can be appealing, there are a few disadvantages to structuring your business as a LLP:
- Filing and Fees: Unlike a general partnership or sole proprietorship; LLPs require filing formation forms and payment of some administrative fees which can cost upwards of $150 for initial filings and may require hiring lawyer.
- Annual Renewal. Unlike LPs and general partnerships, LLPs in Minnesota require annual renewal. This may cost up to $150 in yearly fees.
If you are looking for an attorney to help you with structuring your business, then contact a local Minnesota business lawyer today to get the help you need.