Creating a limited liability partnership (LLP) is one method of creating a partnership. At least two owners—referred to as partners—make up this sort of corporate organization. Texas allows partners in an LLP to be either general partners or limited partners, albeit at least one person must be a general partner.
Most states require all members of an LLP to be general partners. In other kinds of partnerships, general partners are fully responsible for the company’s decisions, but they are also fully involved in its management. Restricted partners have limited liability but are not actively involved in running the business.
Although all partners in an LLP in Texas have limited liability, general partners and limited partners still have their respective levels of involvement as they would in another kind of partnership.
Registered limited liability partnerships are another name for limited liability companies (RLLP). LLPs are a good fit for professions like law, accounting, medicine, and surgery. LLPs are only available to professionals in specific states.
Professionals may prefer LLPs over prefer general partnerships, corporations, and LLCs. Professionals don’t want to be held individually accountable for one of their partners’ issues or malpractice claims. An LLP shields each partner from financial obligations to the partnership resulting from claims of another partner’s professional negligence.
Nevertheless, a partner who loses a malpractice lawsuit is still liable.) Establishing a corporation to safeguard personal assets can be challenging. Some states forbid licensed professionals from establishing an LLC.
Anyone May Form a Limited Liability Partnership
LLPs are typically used by professionals, such as accountants and lawyers, to shield them from responsibility for the mistakes or wrongdoing of other partners. An LLP functions like a general partnership since it has a limited liability status and the same control flexibility. Income, losses, and gains are distributed among partners per the partnership agreement or their interests.
What Conditions Must an LLP Meet?
In Texas, a business must fulfill various standards to be an LLP. A company must be a general partnership (GP) or a limited partnership if it wants to be a domestic LLP, which means it hasn’t registered as an LLP in any other jurisdiction (LP).
When a foreign LLP—a corporation incorporated in another jurisdiction—seeks to register in Texas to conduct business there, it is typically already an LLP under the laws of that other state. The voting partners must agree that the corporation registers as an LLP in Texas, whether a local or foreign LLP.
Unless the LLP is being established from an existing LP, in which case the name may finish in the phrase “limited liability limited partnership” or an abbreviation of that phrase instead, the name of an LLP must end in either the term “limited liability partnership” or an abbreviation of the phrase. As stated previously, the corporation must have a minimum of two partners, one of whom must be a general partner. Additionally, the Texas Secretary of State must receive registration documents from every partnership wishing to conduct business as an LLP in Texas.
If the LLP is a foreign LLP, it must also locate a Texas resident or a business authorized to conduct business there who would agree to act as the LLP’s registered agent, agreeing to accept any legal documents on the company’s behalf. A foreign LLP must designate the Texas Secretary of State as its registered agent if not.
How Does A Limited Liability Partnership Provide Liability Protection?
In an LLP, a partner’s responsibility is restricted to other partners’ negligence or misbehavior. All other debts and obligations of the partnership that are not the result of negligence or wrongdoing are also the responsibility of each partner.
Do Limited Partnerships and Limited Liability Partnerships Differ From One Another?
Businesses with several owners include limited partnerships and limited liability companies. Limited partnerships and limited liability partnerships, in contrast to normal partnerships, provide limited personal liability for business debts.
At least one owner is considered a “general” partner in limited partnerships. A general partner manages the company’s affairs and is personally responsible for its debts. LPs have at least one “limited” partner who contributes capital to the company but exercises little influence on day-to-day operations. These limited partners benefit from not being personally accountable for company obligations.
Similar to a corporation, a limited liability partnership has no general partners. Limited personal liability for business obligations applies to all LLP owners.
Why Opt for an LLP?
Professionals frequently employ LLPs. Most LLPs are founded and run by business experts who have clients. By pooling their resources, the partners reduce operating expenses while raising the LLP’s potential for expansion. Partners can share office space and staff. By cutting costs, the partners can make more money together than they might.
In an LLP, the partners may hire junior partners to elevate them to full partners. Junior partners receive compensation. In many cases, junior partners have no ownership or obligation. The selected professionals, known as junior partners, are qualified to handle the partners’ tasks.
One way that LLPs assist the partners in growing their firm is through junior partners. Junior partners and staff members handle the gritty labor, freeing up the partners to concentrate on generating new business.
LLPs can add and remove partners. In an LLP, partners can be added or removed because a partnership agreement is present. LLPs can add partners who bring their current clientele. All current partners must consent to add new partners.
For some professionals, an LLP is a better choice than an LLC or other corporation due to its flexibility. LLPs are regarded as flow-through entities for taxation. The partners receive untaxed profits and are responsible for covering their own taxes. LLPs are better than corporations since they are taxed as an entity, and their shareholders are subject to additional payout taxes.
What Documents Do I Need to Create an LLP?
A partnership may submit the required papers by mailing or electronically uploading a filled-out copy of the relevant form. Domestic LLPs must complete a Limited Liability Partnership Registration Form.
This form demands:
- The name of LLP
- Federal Employer Identification Number (FEIN) of the Partnership or a statement that one has not yet been obtained
- How many general partners there are
- The location of the main office
- An outline of the business that the partnership will operate
- A declaration of the date on which you want the registration to take effect
- The signature of a general partner if the original partnership was an LP, the signatures of the partners holding a majority in interest if the original partnership was a general partnership, or the signature of a partner designated by those holding a majority in interest.
A foreign LLP must complete an Application for Registration of a Foreign Limited Liability Partnership.
You must offer:
- The LLP’s legal name at this time
- Any other name that the LLP intends to use in Texas should its current name change.
- The LLP’s FEIN or a notification indicating the LLP has not yet applied for a FEIN.
- Original jurisdiction of the LLP
- The date the LLP was first established
- How many general partners are based in Texas
- The country of origin and the date of creation
- The location of the LLP’s main office
- An explanation of the type of business the LLP is engaged in
- The date that the LLP intends to commence business in Texas
- Name and address of the registered agent for the LLP
- Signatures from the partners who hold the majority of the interests in the partnership or from a partner they have appointed.
What Advantages Does a Texas LLP Receive?
Profits from an LLP are subject to individual income tax on each partner. Partners do not have to worry about paying income tax to the state of Texas for the amount of profits they receive from the LLP of which they are a member because Texas does not have a personal income tax.
What Drawbacks Does an LLP Face in Texas?
All LLPs in Texas are required to submit an annual report. For each general partner present in Texas, the filing fee for such a report is $200. In Texas, LLPs must also pay a franchise tax, which varies according to the revenue the LLP generates.
Should I Employ a Business Attorney?
It is difficult to register your business in Texas as an LLP. Therefore, it could be best to consult with a Texas corporate lawyer while registering an LLP.