The partnership is a very commonly used form of business entity. Unlike general partners, partners in a limited liability partnership (LLP) are not personally liable for some of their business’s financial obligations. Professional service firms, such as law and accounting firms, frequently use the LLP structure. However, in Missouri, any business can register as an LLP.
The process of forming a limited liability partnership varies to some extent in different states. In Missouri, the Uniform Partnership Act governs the creation and management of LLPs. The Missouri Secretary of State is responsible for the registration of LLPs.
What Are the Requirements for a Limited Liability Partnership in Missouri?
Unlike some states, in Missouri, any business can become an LLP. However, the business must have at least two partners. A sole proprietor cannot form an LLP.
If a partnership operates under an assumed name, i.e., something other than the partners’ surnames, it must register the business’s name with the state. Additionally, it must designate the business’s limited liability partnership status by putting “LLP” after its name.
Finally, the LLP must designate a registered agent for service of process. A registered agent is someone who is authorized to accept important documents, such as the paperwork that initiates a lawsuit, on behalf of the business. If a business needs help selecting a registered agent, a business lawyer can help with this task, as with all of the others involved.
What Paperwork Do I Need to Form an LLP in Missouri?
To create an LLP, the partners must file an Application for Registration of a Limited Liability Partnership with the Missouri Secretary of State. This form can be submitted either in person or by mail.
The prospective partners must provide the following information on their registration form:
- The name of the partnership;
- The name and street address of the resident agent for service of process;
- The business purpose of the LLP;
- The number of partners;
- Any other information the partners want to provide; and
- The signatures of the majority of the partners or the signature of a partner who is authorized to sign on the partnership’s behalf.
The partners may have to file additional paperwork if they plan on operating the business under an assumed name.
In addition to their state filing, partners should consider having a lawyer draft a comprehensive partnership agreement. A partnership agreement defines the rights and responsibilities of the partners. Among the issues that a partnership agreement can address are the following:
- Partners’ Responsibilities: The agreement should lay out the responsibilities of each partner in the business;
- Ownership Percentages: It should specify how much of the business each partner owns;
- Profit and Loss Distribution: The percentage of profit and loss to which each partner is entitled would be detailed;
- Management Rules: It also includes rules about how the partnership is to be managed;
- Exit of a Partner: The consequences of the exit of a partner should be spelled out;
- Death of a Partner: The agreement would specify such potential scenarios that could affect the business as death of a partner;
- Adding Partners: The agreement would state whether the partnership would want to add new partners and, if so, how and under what circumstances;
- Terminating the Partnership: The agreement would spell out how and why the partnership could be terminated;
- Capital Contributions: The partners want to agree on how much each of them is going to contribute to start and run the business. They want to agree on the form that contributions take, whether they would be cash, property, or services. If the business should need additional contributions at some future time to continue operating, what responsibilities would each partner have.
Having a written partnership agreement can prevent extended litigation if a dispute occurs. For one thing, the agreement can specify that alternative dispute resolution processes would be used in the event of disputes. The process of thinking through the provisions that the partners want in their partnership agreement can help them plan for the future. It can also accommodate growth and anticipate problems before they arise.
If a partnership does not have a written partnership agreement, its operation is governed by the laws of the state in which it is based. These laws mean that an LLP operates with a standardized approach to running its business. It would have to use standardized approaches to the resolution of common issues.
Of course, the problem would be that they are not customized to the business of the partners and their wishes as to how they want things to work. They can lead to results that are not what the partners intend.
What Benefits Does Missouri Give to a Limited Liability Partnership?
Limited liability partnerships have certain specific benefits. First, the LLP itself does not have to pay income tax on its profit. Instead, the profit of the LLP passes through to its partners. The partners then must report their income from the LLP to the federal Internal Revenue Service (IRS) and Missouri state taxing authorities, of course, and then pay income tax on it.
Each partner may not be personally liable for the LLP’s debts or their partners’ negligence and misconduct. In other words, a partner’s personal assets cannot be reached to satisfy the obligations of other partners or the partnership’s debts unless the partner personally guarantees payment. Of course, a partner would still be financially responsible for their own negligence or misconduct.
What Disadvantages Does Missouri Give to a Limited Liability Partnership?
Missouri does not protect LLP partners from all business liabilities. A partner may still be personally liable if they engage in misconduct, are negligent, or personally guarantee a debt. If a person joins an LLP, they want to give serious consideration to the type of liability insurance they want to have to help offset this risk.
Prospective partners who are especially concerned about liability should consider creating a limited liability company (LLC) or S corporation instead. These business entities may offer owners additional protections from liability. However, different rules and procedures apply to LLCs and corporations in Missouri. A business lawyer can help partners decide which business structure is best for them.
If a business with multiple owners does not select a form for their business, then the general partnership form is the default classification for any unincorporated business with multiple owners. This is true whether there is a written partnership agreement or not.
The partners in a general partnership are each fully liable for the company’s debts. For tax purposes, a partnership is considered a pass-through business like an LLP. The partners report their share of company profits and losses on their personal tax returns. They then pay personal income tax on them. If they work in the business, they also pay self-employment taxes.
Should I Hire a Lawyer?
While completing a form is a simple process, a lot more goes into the structuring of an LLP or any other type of business for that matter. If you want to form an LLP in Missouri, you want to consult a Missouri corporate lawyer.
LegalMatch.com can connect you to a lawyer who can register your LLP but also draft a legally binding partnership agreement that fits the unique needs of your business. Your lawyer can also evaluate liability insurance policies and may have ongoing reporting and legal obligations. An experienced business lawyer can help you follow the correct procedures and protect your financial interests.
