A limited liability partnership (LLP) is a type of partnership structure available in Tennessee. Partnerships are agreements between two or more people to own and operate a business. LLPs allow business owners to capture the advantages of other types of partnerships while avoiding some disadvantages.
One of the most critical traits of LLPs is that they provide liability protections for the partners operating the business. These protections prevent owners from facing personal liability for the negligent actions of other partners.
Further, owners of LLPs have greater flexibility than owners of different business entities. LLPs can choose how decisions are made at the partnership level in their partnership agreements. They can also distribute profits as they see fit. Further, there are no restrictions on the number of people who can jointly own an LLP.
Why Choose an LLP?
The flexibility, tax benefits, and liability protections of LLPs make them one of the most popular business structures among professionals in the state.
LLPs and other partnerships provide more flexibility than corporate structures. Corporations follow strict rules governing everything from the leadership structure to how the business must operate. LLPs do not have as rigid a system imposed upon them, giving owners more choices in how they want to run their businesses.
There are also tax benefits that LLPs enjoy. Partnerships pay no federal taxes at the partnership level. Instead, the income will pass through to the owners’ personal income statements. The owners pay personal income tax on distributed profits.
Professionals who choose to do business through an LLP also enjoy the liability protections not available to other forms of partnership. In most cases, owners are not liable for the negligent actions of other partners. This protection is beneficial in professions such as law, accounting, and medicine, where there is a high risk of malpractice claims.
To find out if an LLP is the best structure for your particular business, contact our Hopkinsville limited liability partnership lawyers. We will guide you through the best way to organize your business to meet your goals.
Disadvantages of an LLP
The structure of an LLP is suitable for only some businesses.
First, there must be more than one owner to form an LLP. This requirement might become a problem in small partnerships if too many partners decide they want to leave. If there is only one owner left, the partnership must be dissolved.
LLPs do not provide the same level of liability protection as a corporation or limited liability company. Though partners in an LLP enjoy protection from liability for the negligent actions of another partner, partners are liable for their own negligent acts.
Throughout the regular course of business of an LLP, individual partners can usually bind the entire partnership. The actions of one partner can have a detrimental effect on other partners and the partnership as a whole.
Further, it can be difficult for an individual partner to transfer ownership of their stake in the partnership. Without the agreement of other partners or a prior written agreement, the transfer of a managing stake might be impossible.
Finally, large partnerships in which every partner has an equal say in management can lose the benefit of flexibility. Without a rock-solid partnership agreement, large partnerships can become unwieldy.
Steps to Start an LLP in Tennessee
Hopkinsville business formation attorneys can help business owners decide if the formation of an LLP is right for their business needs. To legally operate an LLP, you must go through the process of officially forming an LLP in Tennessee.
Come to a Preliminary Agreement with All Partners
Laying the groundwork for a successful business venture is essential. It is best if all potential partners start on the same page. Understand the different visions each partner has for the business. It is also crucial to understand the points of disagreement between partners and resolve them in ways acceptable to all parties. If any points of conflict cannot be resolved, the disputes will likely only get worse when the partnership is a going concern. Don’t hesitate to speak with an experienced Hopkinsville limited liability partnership lawyer that can foresee common issues and errors and guide you in the right direction.
Create a Partnership Agreement
Once a preliminary agreement has been reached, it is vital to get the details in writing. An expertly crafted partnership agreement will provide a solid foundation for the business and provide a way to solve future disputes. Essential elements of a successful partnership agreement include:
- The name of your partnership,
- The ownership structure,
- How to make decisions,
- The financial contributions of partners,
- Profit and loss allocation,
- The division of labor,
- How to resolve disputes,
- How to admit new partners,
- How partners can leave the partnership, and
- What happens upon the death of a partner.
LLP attorneys can provide tremendous value when crafting a partnership agreement. A good attorney will know how best to translate the preliminary agreement into an official document. They will also help the partnership avoid common mistakes that can lead to problems in the partnership.
Register Your Partnership with the State
In Tennessee, you must file the proper applications and pay the required fees to operate an LLP in the state legally. It is also helpful to reserve your partnership’s name as soon as you settle on the one you want to use.
Get an EIN, Tax ID, and Any Required Licenses
Any partnership that intends to hire workers will need an employer identification number (EIN). An EIN is also useful in the regular operation of the business. Partnerships in Tennessee will also need a Tax ID and any licenses required in the state based on the professions of the partners.
Operate Your Business
Once you officially register your LLP, it can legally operate in the state. LLP lawyers can help the partnership keep up to date with any required filings and help resolve legal issues that may arise while doing business.
Batson & Nolan PLC Can Help
The Hopkinsville limited liability partnership attorneys at Batson & Nolan have years of experience representing businesses in Tennessee. We can help with your LLP’s legal needs through every stage of business. From formation to everyday operations to the sale or dissolution of your partnership, the attorneys at Batson & Nolan pride themselves on fostering a successful and ongoing relationship with our clients. Whether you are looking to form a business or are already a going concern, contact our lawyers today so we can help with all your business’s legal needs.
Our experienced legal team handles a variety of other cases as well, including: