According to the The Revised Uniform Partnership Act (“RUPA”), a partnership is an association of two or more people in order to carry on as co-owners of a business for profit.
Under this definition, it does not matter whether the people were actually trying to create a partnership on purpose. What matters is that the parties involved intended to carry on as co-owners of a business for profit, which can be determined by two factors: whether they share in the profits that are generated, and whether they have any right to control the business.
An example of this would be if two people open a coffee shop. Once the shop is open, they split the profits, and make joint decisions regarding the coffee shop. Although they do not refer to themselves as partners or business partners, their relationship meets the above definition required to form a partnership.
Control in a partnership can largely be determined by focusing on ownership, management, and the authority to conduct business. This is why it is imperative to define these concepts, and which partners they apply to in a partnership agreement.
While there are no other legal formalities that must be met in order to create a partnership, the majority of all partnerships have a partnership agreement. Generally speaking, unless the partnership agreement states otherwise, all partners have equal rights to control a partnership. What this means is that various issues, such as decisions regarding ordinary day-to-day business operations, require a majority vote of the partners.
However, matters outside the scope of daily business decisions will require the consent of all the partners. An example of this would be selling the partnership. Control in a partnership can also vary based on the specific type of partnership that was formed, and the laws of each specific state.
The limited liability partnership (“LLP”) is a specific classification of partnership with limited liability status. Unlike general partnerships, individual partners are generally protected from individual liability for the misconduct of other partners. It is important to note that LLPs are generally reserved for professionals, such as lawyers and accountants, so that the partners may avoid liability for negligence or misconduct of other partners.
Because an LLP is a general partnership with limited liability status, it runs as a general partnership and has the same flexibility of control. Income, losses, and gains are passed to the partners according to either the partnership agreement or the interests of the partners.
In terms of liability, a partner in an LLP is limited only to the negligence or misconduct of other partners. However, a partner is held liable for all of the other debts and obligations of the partnership that do not result from negligence or misconduct.
It is helpful to define the difference between an LLC and an LLP. A limited liability company (“LLC”) and an LLP are considerably similar. However, the defining difference is that an LLC has the same liability shield as a corporation. What this means is that the members of an LLC may not be personally liable for the debts and obligations of the company.
Similar to most limited liability organizations, the LLP was created by statute. As such, each state’s statute will specify who can form an LLP and the process for becoming an LLP. In general, most states will require filing for a certificate with the Secretary of State.
What Is The Uniform Partnership Act, Or UPA?
The Uniform Partnership Act (“UPA”) governs business partnerships in several U.S. states. Additionally, the UPA provides regulations governing the dissolution of a partnership when a partner dissociates. Several amendments have been added to the Uniform Partnership Act. As such, the revised act and revisions are referred to as the Revised Uniform Partnership Act (“RUPA”), as was previously mentioned.
It is important to note that the Uniform Partnership Act only applies to general liabilities and limited liability partnerships, meaning it does not apply to limited partnerships (“LPs”). The Uniform Partnership Act is intended to govern various business relationships. Generally speaking, this applies to small businesses and informal partnerships because larger businesses maintain detailed agreements to govern any changes in a business.
Overall, the act governs:
- How a partnership is created;
- The fiduciary duties of the partnership, as well as its partners; and
- The definition of both partnership assets and liabilities.
One of the defining features of the UPA would be that when one partner in a business leaves, a majority interest of the remaining partners are allowed to agree to continue the partnership within 90 days of the dissociation.
In 1996, the Limited Liability Partnership Amendments were publicized and combined into the Uniform Partnership Act, which includes the following features:
- A partner can have specific interests assigned as separate liabilities as they are associated with the other property in the partnership. This prevents them from certain rights on assets in the partnership, meaning creditors are only legally allowed to make claims on the partner, and not the total assets in a partnership;
- In terms of their dealings in good faith, the partner’s duties are specified in the act.
- Additionally, these basic standards cannot be abolished by any partner or partnership agreement;
- Standards for conversions and mergers are outlined. An example of this would be changing from a partnership to a limited partnership, or merging in order to create a new entity; and
- Limited liability protection is provided for general partners who are in a limited liability partnership.
How Do I Form An LLP In West Virginia?
Each state has its own unique requirements regarding how to form a limited liability partnership in that state. In West Virginia, under the UPA, an LLP must file a statement of registration with the Secretary of State. This statement must include the:
- Name of the partnership;
- Address of its principal and registered office(s);
- Name and address of a registered agent, where service of process can occur;
- Email address to where notices of annual filings are to be sent;
- Name and addresses of each partner; and
- A brief statement of the business that the LLP conducts.
Additionally, the LLP must pay an annual fee that is due no later than July 1st. This fee is paid, along with the submission of a statement of any material changes to the information that is contained in the LLP’s registration notice. Similar to most partnership entities, LLPs have fewer regulatory and paperwork requirements compared to businesses formed as corporations.
Partners to an LLP are still held liable for the general debts and obligations of the LLP. An example of this would be how if the LLP became contractually obligated for a lease for office space, each partner could potentially be personally liable for any breach of that contract. Of course, each partner is responsible for their own negligent or reckless acts.
Do I Need A Lawyer To Form An LLP In West Virginia?
If you would like to form an LLP in West Virginia, it would be helpful to work with a local West Virginia corporate lawyer. Your attorney can help you determine whether an LLP is the best business management structure for your needs, and guide you through the forming process. An attorney will also be able to represent you in court, as needed, should any legal issues arise.