How to Form a LLP in Vermont

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 What is a Limited Liability Partnership?

A partnership is one of the most commonly formed types of business entities. In contrast to general partnerships, partners in limited liability partnerships (LLPs) are not personally liable for some of the business’ financial obligations.

It is common for professional service forms, such as accounting firms and law firms, to form as LLPs. in Vermont, however, any type of business is permitted to register as an LLP.

LLPs allow each individual partner in the business to be free from the liabilities and debts of any of the other partners. Additionally, the partners are free from certain liabilities and debts of the partnership itself.

In other words, the partners are not liable for anything other than their investment in the business. In many cases, individuals form LLPs to protect their personal property in the event they face a lawsuit.

An LLP is similar to a general partnership because all of the partners are able to actively participate in the management of the LLP. in addition, the gains and losses of the business are passed through the partners according to the partnership agreement.

The process of forming limited liability partnerships varies from state to state. In some states, there are rules regarding what individuals are permitted to structure their businesses as an LLP.

For example, only individuals licensed to practice law, public accounting, or architecture can structure their businesses as LLPs in the following states:

  • California;
  • Nevada;
  • New York; and
  • Oregon.

What Are the Advantages of a Limited Liability Partnership?

There are several advantages to limited liability partnerships, including:

  • The partners have limited legal liability;
  • The partners have flexible roles;
  • Pass-through taxes; and
  • They are easy to form.

Some of the major advantages of LLPs are the limited legal liability and the flexible management roles the partners are able to play. LLPs, in contrast to general partnerships, do not expose the partners to unlimited legal liability.

In other words, if an LLP is sued, the partners in the LLP will not be held liable for an indefinite amount. Instead, the partners’ liability is limited to the amount which they contributed to the LLP for its formation.

This limited legal liability shield, however, is not available if a lawsuit arises from intentional actions of one of the partners. Limited liability partnerships also have flexible management roles for partners.

The roles of the partners are defined in the LLP agreement that the partners themselves draft. In an LLP, every partner has the right to manage the LLP as well as the right to choose how involved they want to be in the management of the business, for example, having an active role in the business or being able to act as a silent partner in the LLP.

Pass-through taxes are also a major benefit of LLPs. This avoids double taxation.

The partners in the LLP will only pay their own personal income taxes. The LLP itself will not be taxed as a business entity.

The laws of the state in which the LLP is formed will provide the structured process for forming an LLP.

Because of these instructions being provided, an LLP is relatively easy to form. Generally, in order to form an LLP, the partners must complete a registration form and file that form with their local secretary of state.

It is important to note that registering an LLP may require the partners to put in writing provisions in an agreement that include the partners’:

  • Roles;
  • Responsibilities;
  • Financial contributions; and
  • Debt distributions.

In the State of Vermont, the Secretary of State is responsible for the registration of limited liability partnerships.

What Are the Requirements for a Limited Liability Partnership in Vermont?

As noted above, in contrast to some states, any business can register as an LLP in Vermont. However, the business must have at least two partners.

In other words, a sole proprietor cannot form an LLP in Vermont. If an LLP operates under an assumed or trade name, something other than the partners’ surnames, the business name must be registered with the state.

In addition, the business must be designated as a limited liability partnership by putting “LLP” after the business name. Every LLP must designate a registered agent.

A registered agent is an individual who is authorized to accept important documents, such as paperwork initiating a lawsuit, for the business. If an LLP needs assistance selecting a registered agent, a business lawyer can assist in the process.

What Paperwork Do I Need to Form a Limited Liability Partnership?

In order to create a limited liability partnership in Vermont, an individual must file a Statement of Qualification with the Secretary of State. This form can be submitted either by mail or online.

The following information must be provided in the Statement of Qualification:

  • The name of the partnership;
  • The LLP’s business purpose, which is optional;
  • The principal business address;
  • The registered agent’s:
    • name;
    • mailing address; and
    • street address;
  • The names and addresses of all partners;
  • The effective filing date, which is optional; and
  • The signatures of at least one authorized partner.

If an individual plans on operating their business under an assumed name, they may be required to file additional paperwork. In addition to filing the required paperwork with the state, an individual should consider drafting a partnership agreement for their LLP.

Partnership agreements define the rights and responsibilities of the partners. For example, the partnership agreement may outline the procedures for:

Having a written partnership agreement can also prevent extended litigation if a dispute arises.

What Benefits Does Vermont Give to a Limited Liability Partnership?

As previously noted, specific benefits are provided to LLPs. First, LLPs are not required to pay income taxes.

Instead, the income of the LLP passes through to the partners. The partners must then report this income to the Internal Revenue Service (IRS) and pay their taxes.

In addition, the partners may not be held personally liable for the debts of the LLP or the negligence or misconduct of another partner. In other words, a partner’s individual assets cannot be used to satisfy the partnership’s debts unless they:

  • Were negligent;
  • Engaged in misconduct; or
  • Personally guaranteed payment.

What Disadvantages Does Vermont Give to a Limited Liability Partnership?

One disadvantage of forming an LLP in Vermont is that the state does not protect LLP partners from all business liabilities. A partner may still be held personally liable if, as noted above, the partner was:

  • Negligent;
  • Engaged in misconduct; or
  • Personally guaranteed payment

If an individual forms a limited liability partnership, they should seriously consider purchasing liability insurance to help offset this risk. If an individual is concerned about this liability issue, they should consider creating a limited liability company (LLC) or S corporation instead.

These types of business entities may offer additional protections. It is important to note, however, that different procedures and rules apply to corporations and LLCs in Vermont.

A business lawyer can help an individual determine which business structure is best for them.

Should I Hire a Lawyer?

Although completing a form seems to be a simple process, there is a lot more to consider when forming a limited liability partnership. If you are interested in forming an LLP, it is in your best interests to consult with a Vermont corporate lawyer.

Your lawyer can assist you with creating a legally binding partnership agreement, evaluating liability insurance policies, and explaining any ongoing reporting and legal obligations. If you have already formed your LLP, your lawyer can assist you with drafting or revising your partnership agreement.


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