Partnerships are one of the most commonly formed business entities. Unlike a general partnership, partners in a limited liability partnership (LLP) are not personally liable for some of the business’ financial obligations. Professional service firms (such as law and accounting firms) frequently forms as LLPs. However, in Virginia, any business can register as an LLP.
The process of forming a limited liability partnership varies from state to state. In Virginia, the Uniform Partnership Act governs the creation and management of LLPs. The State Corporation Commission is responsible for the registration of limited liability partnerships.
- What are the Requirements for a Limited Liability Partnership in Virginia?
- What Paperwork Do I Need to form a Limited Liability Partnership?
- What Benefits Does Virginia Give to a Limited Liability Partnership?
- What Disadvantages Does Virginia Give to a Limited Liability Partnership?
- Should I Hire a Business Lawyer?
Unlike some states, any business can become an LLP in Virginia. However, you must have at least two partners (a sole proprietor cannot form an LLP).
If your partnership operates under an assumed name (something other than the partners’ surnames), you must register the business’ name with the state. Additionally, you must designate your business’ limited liability partnership status by putting “LLP” after its name.
You must also designate a registered agent for your LLP. A registered agent is someone who is authorized to accept important documents (like paperwork initiating a lawsuit) for your business. If you need help selecting a registered agent, a business lawyer can help you with the process.
To create a limited liability partnership, you must file a Statement of Registration with the State Corporation Commission. This form can be submitted either in person or by mail.
You must provide the following information on your Statement of Qualification:
- The name of your partnership,
- Your SCC identification number (if previously assigned),
- Your principal business address,
- Your registered agent’s name, address, and type,
- Any other information the partners decide to report,
- The manner in which the partners approved the registration, and
- The signatures of at least two authorized partners.
You may have to file additional paperwork if you plan on operating your business under an assumed name.
In addition to your state filing, you should consider drafting a partnership agreement. A partnership agreement defines the rights and responsibilities of your partners. For example, a partnership agreement may set out the procedures for distributing profits, adding partners, or terminating the partnership. Having a written partnership agreement can prevent extended litigation if a dispute occurs.
Limited liability partnerships have specific benefits. First, an LLP does not have to pay income taxes. Instead, its income passes through to its partners (who must report this income to the IRS and pay taxes).
And, you may not be personally liable for the LLP’s debts or your partners’ negligence and misconduct. In other words, your personal assets cannot be used to collect the partnership’s debts unless you were negligent, engaged in misconduct, or personally guaranteed payment.
Virginia does not protect LLP partners from all business liabilities. You may still be personally liable if you engage in misconduct, are negligent, or personally guarantee a debt. If you form a limited liability partnership, you should seriously consider purchasing liability insurance to help offset this risk.
If you are concerned about liability, consider creating a limited liability company (LLC) or S corporation instead. These business entities may offer owners additional protection. However, different rules and procedures apply to LLCs and corporations in Virginia. A business lawyer can help you decide which business structure is best for you.
While completing a form is a simple process, a lot more goes into the structuring of a limited liability partnership. For example, you should create a legally binding partnership agreement, should evaluate liability insurance policies, and may have ongoing reporting and legal obligations. An experienced Virginia corporate lawyer can help you follow the correct procedures and protect your financial interests.