There are many ways to structure a company, as a corporation, a limited liability partnership (LLP), or a sole proprietorship, for example. With an LLP, the owners, known as partners, have limited liability. They can only be held liable up to the amount they have invested in the company.
At the same time, all of the partners, both general and limited, are allowed to participate in decision-making for the LLP. An LLP must be registered with the South Dakota Secretary of State’s office in order to be able to transact business as an LLP in South Dakota.
What Are the Requirements for an LLP?
In order to become properly registered as an LLP with the South Dakota Secretary of State, a company must satisfy a number of requirements. One of these is for the LLP’s name to contain the LLP designation at the end.
The designation can take any one of the following forms:
- “Registered Limited Liability Partnership,”
- “Limited Liability Partnership,” or
Generally, an LLP will need a registered agent to receive official documents on behalf of the LLP, including service of process in the event the LLP is sued. The registered agent can be a noncommercial registered agent with a street address in South Dakota, a commercial registered agent, or someone involved in the LLP with an office address in the state.
However, a domestic LLP, which is an LLP that has chosen to register as an LLP for the first time in South Dakota, can avoid this requirement if it establishes its main office in South Dakota. Every LLP will also need to file paperwork with the South Dakota Secretary of State.
While it is not a requirement under state law, the partners would want to have a written partnership agreement. This is a document that outlines how the partnership will operate and includes such details as how to deal with partners who wish to exit the partnership, how to bring in new partners, changing the nature of the business, or even shutting the partnership down. This is a task with which an experienced South Dakota business lawyer can help.
What Paperwork Do I Need to Form an LLP?
There are different paperwork requirements for domestic LLPs and non-domestic, or foreign, LLPs, but all of the paperwork for both kinds of LLPs can be filed by mail. Domestic LLPs have to fill out a Statement of Qualification for a Domestic Limited Liability Partnership.
The form requires the LLP to provide the name of the LLP and the street address of the LLP’s chief executive office, as well as the main mailing address for the LLP, if it is different from the office’s street address. It is also necessary to provide the appropriate identification and contact information for the LLP’s registered agent if the LLP’s chief executive office is located outside of South Dakota.
It is also necessary to designate a deferred effective date for the paperwork if it is not supposed to become effective when filed. Finally, the form needs to be signed by at least two of the LLP’s partners.
Foreign LLPs must file a Statement of Qualification for a Foreign Limited Liability Partnership with the Secretary of State of South Dakota in order to create a foreign LLP. On this form, the following information must be included:
- The LLP’s name,
- The jurisdiction in which the LLP was first registered;
- The street address of the chief executive office of the LLP;
- The mailing address for the LLP in the event that it is different from the office’s street address;
- An effective date for the paperwork if the date is to be deferred;
- The contact and identification information of the LLP’s registered agent.
Two of the LLP’s partners must sign the form before it is submitted. The Statement of Qualification must be submitted along with a one-page Original Certificate of Existence issued by the Secretary of State, or other official having custody of the corporate records, in the state or other jurisdiction under whose law it is incorporated.
Another form of LLP is the limited liability limited partnerships (LLLP). An LLLP is created by first forming a limited partnership and then electing to convert that to an LLLP. A person should contact the South Dakota Secretary of State for details before moving forward, as the process is more complicated than forming other types of partnerships.
If the partners plan to hire employees, they need to get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Even if the partners do not plan to hire employees, an EIN is helpful for various other business activities, such as opening business bank accounts, obtaining business credit cards, and the like. Every LLLP would want to have one.
Some partnerships are going to need additional licenses from the state in order to engage in their desired business activity. For example, plumbers, electricians, and other types of construction trade contractors usually need to be licensed to do business. Additional fees may have to be paid to obtain the necessary trade licenses.
Once the Secretary of State has approved the paperwork and has returned a certified, stamped copy of the paperwork back to the founding partners, they are in a position to start doing business.
What Benefits Does South Dakota Give to an LLP?
The profits of an LLP are not taxed twice as are the profits of a corporation. Instead, they are only taxed once, as income that is passed through each partner. A major benefit of creating an LLP in South Dakota is that no partner will not need to pay any state taxes on any of the profits the LLP earns in South Dakota, because the state does not have a personal income tax. Of course, income taxes must be paid to the federal government.
LLPs limit general partners’ liability for debts created by their own actions. This means that general partners in LLPs are typically only liable for the debts incurred by the LLP that they personally had a hand in creating.
So, for example, this would mean that one professional partner could not be liable for the malpractice of another professional partner. LLPs are taxed in the same manner as general partnerships (GPs) and limited partnerships (LPs), that is, the profits are passed through to the partners who pay personal income tax..But, again, there is no personal income tax in South Dakota.
What Disadvantages Does South Dakota Give to an LLP?
South Dakota does require every LLP to file an annual report. If the LLP is late in filing the report, it will be charged a $50 late fee. If it continues to be delinquent in submitting the report, the LLP could face administrative dissolution. So it would be important to file the annual report in a timely manner.
Should I Hire a Business Lawyer?
Creating an LLP and making sure you file all the right paperwork can be challenging. Hiring a South Dakota corporate lawyer to help you makes the process of setting up your LLP less stressful. A lawyer can help you decide which form of business best suits your business goals and can help draft an optimal partnership agreement as well.