A limited liability partnership (LLP) is a type of business arrangement that allows the individual partners to be free from the debts and liabilities of all of the other partners, as well as from certain debts and liabilities of the partnership. In an action brought against the partnership as a whole, no single partner is personally liable. In this way, it differs from a general partnership, in which all partners are liable for the partnership’s debts and obligations.
A limited liability partnership is similar to a general partnership in that all partners can actively participate in the management of the business, and losses and gains from the business are passed through to the partners according to their partnership agreement.
In North Carolina, the requirements to form a LLP are the following:
- File a Application for Registration: To form a North Carolina Limited Liability Partnership, you must file an Application for Registration with the North Carolina Secretary of State.
- Name of Your Limited Partnership: You must also name the LLP and be sure to check that the name of the LLP is not used and unique from other business entities of trademarks on North Carolina. The name of a North Carolina LLP has to include the words “registered limited liability partnership,” “limited liability partnership,” the abbreviation “L.L.P.” or the designation “RLLP” or “LLP,” in uppercase or lowercase letters.
- Statutory Agent: Every North Carolina LLP must have a statutory agent that will represent the LLP in any matter or will take legal papers on the behalf of the LLP.
- Get EIN: Since a LLP is a separate entity than its partners; you would need to get a federal Employer Identification Number from IRS.
- Partnership Agreement: In North Carolina, a partnership agreement is not required when forming a LLP, but it is recommended. A partnership agreement would state what each partner can and cannot do when making business decisions.
- Register with Department of Revenue & Get Business Licenses: Depending on the type of business that you have, you would need to register with department of revenue DOR if you are selling goods and collecting tax and obtain a business license.
- File Annual Report: In North Carolina, it is required to file an annual report for your LLP.
To form a North Carolina Limited Liability Partnership, you must file a Application for Registration with the Secretary of State with the following information:
- Official Name of the LLP
- Address of office of LLP
- Address of the agents of LLP
- Name and Address of each partner of the LLP
There are several benefits of having a limited liability partnership in North Carolina. These benefits are:
- Limited Liability: Limited partners are all protected in a LLP and every partner gets management control of the business.
- Tax Benefits: The profits and losses in a LLP flow through the business to the partners, all who are taxed on their personal income tax returns and get to share the profits and losses and are not held to double tax
- Flexibility: Limited liability partnerships offers business owners and partners flexibility in business ownership. Partners have the right and control to decide how they will individually contribute to business operation and management. They can also divide the business duties based on experience of each partner.
While North Carolina offers a lot of advantages to LLPs, they also have some disadvantages, such as:
- Death of a Partner: LLPs are automatically dissolved upon a death of a partner even if the other partners want it to continue.
- Partners Do Not Have to Agree: In an LLP, the partners do not need to consult with one another over certain business decisions. This is why a partnership agreement is recommended before the LLP is formed to state what each partner can and cannot do.
- No IPO: LLPs cannot get money from the public and they cannot go for an IPO.
The selection of the right business entity is vital to the success and organization of an organization. Hiring a business lawyer familiar with LLPs will help you to analyze the pros and cons of choosing a particular business entity. If you decide an LLP is right for you, a lawyer can help you draft your state’s required filing documents