A Limited Liability Partnership (LLP) is a manner in which a business may be structured in order to provide limited liability to the members of the business, called partners, and to also take advantage of the structural and tax flexibility of a partnership. The LLP allows the individual partners to be free from the debts and liabilities of all of the other partners in addition to being free from certain debts and liabilities of the partnership.
The limited liability aspect of an LLP serves to protect the assets of the limited partners from losses, debts, and legal claims which are related to other individual partners and, in some cases, to the partnership itself. Similar to a partnership, an LLP avoids taxes and other organizational requirements that are associated with corporations.
In actions which are brought against the partnership as a whole, no one single partner will be held personally liable. An LLP differs in this manner from a general partnership, in which all of the partners are liable for the debts and obligations of the partnership.
LLPs are similar to general partnerships because all partners are permitted to actively participate in the management of the business. In addition, the gains and losses from the business are passed through to the partners in accordance with their partnership agreement.
There are certain states where only individuals who are licensed to practice law, architecture, or public accounting are permitted to structure their businesses as LLPs, including:
- New York;
- Oregon; and
What are the Requirements for an LLP in Minnesota?
LLPs are only permitted to be formed under state laws. Because of this, the requirements for and protections provided to LLPs may vary widely by state.
Although there is a lot of flexibility available in creating and structuring an LLP in Minnesota, there are several mandatory requirements, including:
- Choosing a Name for the LLP: The name is required to be different from all other business names on record with the Minnesota Secretary of State. In addition, the name must include one of the following:
- Limited Liability Partnership;
- Registered Limited Liability Partnership;
- L.L.P.; or
- Choosing a registered agent: If the LLP does not have a business office located in the State of Minnesota, the LLP is required to have a registered agent to ensure that all important information or legal issues will be delivered to the LLP;
- A registered agent may be any Minnesota resident or business that is authorized to do business in Minnesota. They are required to have an address in Minnesota;
- Statement of Qualification: The Minnesota Secretary of State provides a 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 one is required;
- Partnership agreement is optional: Minnesota does not require a partnership agreement. However, an agreement is an excellent idea to resolve issues such as:
- partner contributions;
- distribution of profits;
- partners’ authority; and
- other issues which may arise; and
- Annual Renewal: Minnesota requires all LLPs to file an annual report either online or by mail.
What Paperwork Do I Need to Form a LLP in Minnesota?
The forms that are required for individuals to organize their business as an LLP can be located on the Secretary of State website. These forms as well as the processing fee may be filed with the Minnesota Secretary of State.
Who is Liable for Acts of Negligence in an LLP?
Although the partners in an LLP are not liable for the acts of negligence or misconduct of their co-partners, they are personally liable for their own acts of negligence. A partner is only shielded from individual liability when the wrongful behavior was committed by the partnership itself, which is a separate legal entity from its members or by other partners.
Can an LLP Sue its Individual Partners?
Yes, an LLP is permitted to sue, in its own capacity, its individual partners. This may include actions for breaching a partnership agreement or for causing harm to the partnership.
An individual partner is also permitted to sue the partnership in order to:
- Enforce the partnership agreement;
- Enforce their rights to relevant information related to the partnership; and
- Enforce their rights to an equal share of the profits which are generated by the business.
Can One Partner in an LLP Sue Another Partner?
Regarding lawsuits between partners in an LLP, there are no special rules which apply when one partner is suing another partner for conduct which did not involve the partnership. For example, if one partner runs into another partner with their vehicle.
If, however, the other partner acted with the authority of the partnership against another partner personally, then the injured partner may sue the partnership.
What is a Limited Liability Company vs. a Limited Liability Partnership?
Limited liability companies (LLCs) and LLPs are essentially the same thing. The primary difference between the two is that an LLC has the same liability shield as a corporation.
This means that the members of an LLC may not be held personally liable for the debts and obligations of the company.
What Benefits Does Minnesota Give to an LLP?
There are several reasons why an individual may wish to structure their business as an LLP, including:
- Limited liability: Similar to a corporation, an LLP 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 pass-through entities and avoid the double tax which is associated with corporations, meaning that the LLP itself is not taxed;
- instead, the partners are taxed according to their individual tax bracket when they receive a share of the profits of the LLP;
- Survivability: In contrast to a general partnership, an LLP does 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; and
- General partner liability: In contrast to a limited partnership, an LLP does not require there to be a general partner that is liable for the actions and debts of the partnership.
What Disadvantages Does Minnesota Give to an LLP?
Although the limited liability and the ability to avoid the double tax which is associated with corporations may be appealing, there are also a few disadvantages to structuring a business as an LLP in Minnesota, including:
- Filing and fees: Unlike a general partnership or sole proprietorship; an LLP requires filing formation forms and payment of some administrative fees which can cost upwards of $150 for initial filings and may require hiring a lawyer; and
- Annual renewal. Unlike LPs and general partnerships, LLPs in Minnesota require annual renewal which may cost up to $150 in yearly fees.
Should I Hire a Business Lawyer?
If you are considering structuring your business as an LLP in Minnesota, it may be helpful to consult with a local Minnesota corporate lawyer. Your lawyer can ensure that an LLP is the proper business structure for you and assist you in completing the required steps to create your LLP.