A partnership is a legally-recognized business entity that is composed of two or more people. Each member of a partnership holds ownership in the business, and as such they are also responsible for the liabilities of the business.
Partnerships are most often created by formal written agreements, but partnerships can also exist on less formal terms. The laws that govern creating a partnership may differ considerably from state to state; as such, it is important to be aware of the laws in your specific state.
Partnerships can be categorized into two different categories: general partnerships, and limited partnerships. In a general partnership, each partner is generally jointly responsible for all of the losses and violations that are associated with the partnership as a whole. Alternatively, in a limited partnership, general partners are still liable for everything associated with the business while limited partners enjoy limited liability.
A limited liability partnership (LLP) is a specific type of business management structure that allows each of the individual partners to be free from the debts and liabilities of all of the other partners. They are also free from certain debts and liabilities associated with the partnership itself. In a legal action that is brought against the partnership as a whole, no single partner is personally liable. This is largely how an LLp differs from a general partnership, in which all partners are liable for all of 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. Additionally, all losses and gains resulting from the business are passed through to the partners according to their partnership agreement.
While the partners in an LLP are not held liable for their co-partners’ acts of negligence and/or misconduct, they are held personally liable for their own negligent acts. What this means is that the partners are only shielded from individual liability when the wrongful behavior was committed by the partnership itself, which exists as a separate legal entity from its constituent members. This is true if the wrongful behavior was on the part of the other partners.
It is important to note that in California, New York, Oregon, and Nevada, only those who are licensed to practice public accounting, law, or architecture can structure their business as an LLP.
How Do I Form An LLP In Ohio?
To reiterate, state laws may vary considerably in terms of how to form a limited liability partnership. In the state of Ohio, the requirements to form an LLP include the following:
- File a Statement of Qualification: In order to form an Ohio Limited Liability Partnership, you will need to file a Statement of Qualification and pay a filing fee. Both of these actions occur with the Ohio Secretary of State.
- Name of Your Limited Partnership: You will need to name the LLP, and ensure that the name of the LLP is not used and is unique from other business entities of trademarks in Ohio. In Ohio specifically, the name of the LLP must include the words:
- Registered limited liability partnership;
- Limited liability partnership;
- The abbreviation L.L.P.; or
- Either the designation “RLLP” or “LLP,” in either uppercase or lowercase letters.
- Statutory Agent: Every Ohio LLP must provide evidence of a statutory agent. A statutory agent represents the LLP in any matter, and will take legal papers on the behalf of the LLP.
- Obtain An EIN: Because an LLP is a separate entity from its partners, you would need to obtain a federal Employer Identification Number (“EIN”) from the IRS. This is a specific nine-digit number which identifies the business for tax purposes.
- Publication Requirement: When the Corporate Divisions approves the Statement of Qualification for the LLP, a copy of the Statement of Qualification must be published in the county of the LLP’s principal place of business. This publishing must happen within sixty days of approval.
- Partnership Agreement: In Ohio, a partnership agreement is not required when forming a LLP. However, it is recommended, as a partnership agreement would state what each partner can and cannot do when making business decisions. A solid partnership agreement can help reduce the likelihood of future legal issues.
- Register with The Department of Revenue, And Obtain Business Licenses: Depending on the specific type of business that you have, you would need to register with the Department of Revenue (“DOR”) if you are selling goods and collecting tax. Additionally, you will need to obtain a business license.
- File Biennial Reports: The State of Ohio requires you to file biennial reports for your LLP. This would be Form 520. The report must be filed between April 1 and July 1.
In terms of paperwork, in order to form an Ohio Limited Liability Partnership, you must file a Statement of Qualification with the Corporate Division. This should provide the following information:
- The official name of the LLP;
- Address of the office of LLP;
- Address of the agents of the LLP; and
- The name and address of each partner of the LLP.
What Are The Advantages And Disadvantages To Forming An LLP In Ohio?
There are several benefits associated with having a limited liability partnership in Ohio. These benefits are:
- Limited Liability: Limited partners are all protected in a LLP. Additionally, every partner has some degree of management control of the business;
- Tax Benefits: The profits and losses in a LLP flow through the business to the partners. The partners are taxed on their personal income tax returns, and share the profits and losses. As such, they are not held to double taxation; and
- Flexibility: Limited liability partnerships offer business owners and partners flexibility in terms of business ownership. Partners have the right and control to decide how they will individually contribute to business operation and management. Additionally, they can divide the business duties based on the experience of each partner that is involved.
However, it is important to also consider the disadvantages that are commonly associated with forming an LLP in the state of Ohio. Some examples include, but may not be limited to:
- The Death of a Partner: LLPs are automatically dissolved upon the death of a partner, even if the other partners do not wish to dissolve the LLP and would rather continue business operations;
- Partners Do Not Have to Agree: In an LLP structure, the partners do not need to consult with each other regarding certain business decisions. This is why a partnership agreement is recommended before the LLP is formed, in order to state what each partner can and cannot do; and/or
- No IPO: LLPs cannot get money from the public. Additionally, they cannot go for an IPO, or an initial public offering.
What Else Should I Know About Limited Liability Partnerships In General?
A limited liability partnership may sue individual partners, in its own capacity. This generally includes actions for breaching the partnership agreement, or causing harm to the partnership. Additionally, an individual partner may sue the partnership in order to enforce the partnership agreement. They may also sue in order to enforce their right to relevant information about the partnership, and their rights to an equal share of the profits that are generated by the business.
In terms of lawsuits between partners, there are no special rules associated with when one partner is suing another partner for conduct that had nothing to do with the partnership. However, if one partner acted with the authority of the partnership against another partner personally, the injured partner will most likely sue the partnership.
Do I Need An Attorney To Form An LLP In Ohio?
If you wish to form an LLP in Ohio, a Ohio corporate lawyer who is familiar with LLPs can help you determine whether this business management structure best suits your needs. Your lawyer can help you draft your state’s required filing documents, and will also be able to represent you in court, as needed, should any legal issues arise.