Step by Step Guide: How to Start a Limited Liability Limited Partnership
A limited liability limited partnership or LLLP is a newer form of partnership that has become available in and is recognized in a number of states. It functions like a limited partnership (LP), with one or more general partners who manage the day-to-day affairs of the business and one or more limited partners who act as silent investors in the business. The difference between an LLLP and LP is that the LLLP provides some liability protection to the general partners, whereas LPs only offer liability protection for the limited partners. Due to this fact, general partners in LPs will often use a limited liability company (LLC) or a corporation in order to provide themselves with liability protection. With an LLLP, this liability protection for general partners is already built into the business structure.
The biggest advantage of an LLLP is the liability protection provided for the general partners, which is not provided through an LP. Should your company be sued or if your company has outstanding debts, general partners cannot be held personally responsible. Additionally, suppose any of the other general partners perform any misconduct or wrongdoing. In that case, the other general partners cannot be held personally responsible for the actions of the other partners. LLLPs can engage in general business actions in the same ways other business structures can. While LLLPs are still not as well known as some of the other business structures, they can be useful in certain industries. LLLPs are most commonly seen in the real estate development industry but are also used in other industries, such as asset management. The following article will serve as a basic step-by-step guide in how to form an LLLP.
Steps to Start a Limited Liability Limited Partnership
- Check if you can Register as an LLLP in your State
- Choose a Name for your Limited Liability Limited Partnership
- Designate InCorp Services as your Registered Agent
- Create a Partnership Agreement
- Register your Limited Liability Limited Partnership with the State
- Acquire an Employer Identification Number (EIN)
- Open a Business Bank Account
- Obtain Adequate Business Insurance Policies
1. Check if you can Register as an LLLP in your State
Not every state recognizes LLLPs, so you will want to check to see if you can indeed set up an LLLP in your state. You can go to your state's secretary of state's website (or the governing body that oversees business formation in your state) and see if LLLPs are recognized. If they are, you can check to see what information or documents you will need to provide in your state in order to set up an LLLP.
It is likely that your state will have specific guidelines that detail how to setup and LLLP in your state. If this is not the case, then you will likely need to first set up an LP and then take additional steps to file for liability protection for general partners. Once this step is completed, it will convert your LP into an LLLP.
Limited liability limited partnerships are currently legally recognized in the following states:
- Alabama
- Arizona
- Arkansas
- Colorado
- Delaware
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Iowa
- Kentucky
- Maryland
- Minnesota
- Missouri
- Montana
- Nevada
- North Carolina
- North Dakota
- Oklahoma
- Pennsylvania
- South Dakota
- Texas
- Virginia
- Washington
- Wyoming
California does not currently allow registration of LLLPs in their state, but they do legally recognize LLLPs that were created in other states. Since LLLPs are not currently legally recognized in all 50 US states, LLLPs may not be a good business structure for those who operate their company in multiple states. LLLPs also have not had the liability protections they provide thoroughly tested in the courts over a long period of time with a wide variety of cases.
2. Choose a Name for your Limited Liability Limited Partnership
Picking a name to represent your company can be a fun and creative process, but there are certain things you will also need to keep in mind. First, you will have to make sure no other business in your state is using your name. Also, you will need to make sure it adheres to your state's business naming guidelines; certain words are not allowed to be included in different types of businesses. Typically, certain words are not allowed because they can confuse a business entity with a governmental entity or portray the business as having a business structure that it does not. Most states have a list of words that are not allowed in their naming regulations and also a search tool to find if the name you have chosen is available and not already in use; this is usually found on the secretary of state's website. Additionally, you may be required to designate the type of business structure you have within your company's name.
3. Designate InCorp Services as your Registered Agent
Within all 50 US states, when you register your business as a legal entity with the state, you will be required to provide the name and address of your registered agent. A registered agent is designated to receive important legal documents from federal and state agencies as well as service of process (a required notice of legal action involving your company, such as a lawsuit) on behalf of your business. This is because it is important that the receipt of these documents and notices is verified. This came as a way to help protect the rights of businesses through due process, as they have the right to be notified of legal action is being taken against them. Therefore, it helps protect your business and ensures you will receive these important communications.
Registered agents must be available at all times at a designated physical address during normal business hours in order to be able to receive these important legal notices. Due to this requirement, many companies will opt to use an outside company, like InCorp Services to fulfill the role of their registered agent.
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4. Create a Partnership Agreement
Some states may not require Limited Liability Limited Partnerships to have a partnership agreement, however, it is something that can prove to be very useful in the future if any disagreements arise amongst the partners. It can help work out how different sorts of issues would be handled beforehand and can make sure all of the partners are on the same page. A partnership agreement will outline how your business will operate and how it will respond to certain circumstances that may arise within the LLLP. It can also define the various roles, rights, and responsibilities that all of the different partners will have. This can prevent a lot of potential conflict within the LLLP should one of the issues outlined in the partnership agreement come to fruition.
The following list details some of the items that could be covered within an LLLP's partnership agreement:
- The name of the limited liability limited partnership.
- The specific function and aims of your business.
- Names and contact information of all of the partners.
- Roles and responsibilities of the partners.
- How the ownership, profits, and losses are distributed throughout the partnership.
- What investments and contributions have been made by each partner.
- How will disagreements be handled; will there be a voting system used to make decisions.
- What procedure will be followed if a partner wants to leave the partnership and sell their stake.
- What will happen in the event of the death of a partner.
5. Register your Limited Liability Limited Partnership
In order for your Limited Liability Limited Partnership to be officially recognized, you will need to register with the state. To do this, you must prepare and file the relevant certificate of partnership for your LLLP in your state. Some states have direct guidelines and paperwork you will need to fill out in order to set up your LLLP. In other states, you may need to first register as an LP and then take further steps to provide liability protection for your general partners. Once you have completed this additional step, your LP will turn into an LLLP.
You will likely need to provide some basic information regarding your business, such as the name of your business, the official address of your business, the names, roles, addresses, and contact information of your various partners, name, and address of your registered agent, and the general purpose of your business. The information you will need to provide will vary from state to state. However, you should be able to find all the information required and the forms you need to fill out on your state's secretary of state's website or whichever governing body manages business formation in your state. All of the documents should be able to be filled out online or printed out and filed through the mail. Once your registration has been approved, you will receive an officially approved copy from the state that you should keep for your records. Once all of these steps have been completed, your Limited Liability Limited Partnership will be officially established and recognized as a legal entity by the state.
6. Acquire an Employer Identification Number (EIN)
You will need to acquire an employer identification number (EIN) from the IRS, which will serve as your tax ID number. This will allow you to file taxes for your limited liability limited partnership and will be needed in other areas of business, such as applying for business licenses and permits, opening a bank account for your business, applying for loans, and hiring your employees. This is an important step in starting your LLLP and should be done as soon as possible so that you can obtain the necessary business licenses and permits you will need to legally operate your business. In addition, it will be needed to receive any business loans you may need to provide any funding you may need outside of your internal investments from your limited partners.
A business license is a government-issued permit that will allow your LLC to conduct business legally within the governmental body's jurisdiction.
7.Open a Business Bank Account
Opening a separate business bank account for your limited liability limited partnership will be essential in starting your business. Different banks will require different information and documents about your LLLP in order for you to open an account, but generally speaking, some basic information about your business will be required.
The following are some of the things a bank may ask that you provide while setting up an account:
- Name and official address of your business.
- Date that your LLLP was formed.
- Your LLLP's employer identification number (EIN).
- Name, addresses, and other personal information such as social security numbers of your LLLP's various partners.
- Your partnership agreement.
- Officially approved registration documents of your LLLP from the state.
- Business license.
Once your business account has been set up and is functional, it is extremely important that you only use it for your business finances. Mingling your or your various partners' personal finances with your business account can leave you susceptible to conflict amongst the partners, lawsuits, and administrative dissolution, where the state can, in essence, formally close your business. Therefore, business bank accounts and finances must remain separate from your LLLP's partners' personal finances.
8. Obtain Adequate Business Insurance Policies
It is important for limited liability limited partnerships to acquire adequate insurance policies to protect their businesses in the case of an unfavorable event or lawsuit. Inadequate insurance coverage could result in the closure of businesses should an unfortunate event occur, whether that be a natural disaster, theft, vandalism, a lawsuit, or unforeseen economic circumstances and impacts that affect the business. Certain industries have business insurance policies that have been specifically designed to cater to these industries' unique liabilities. A general liability insurance policy is also an effective way to help protect your business in a multitude of areas. This is especially important for real estate development as many people will likely be present in the buildings that have been constructed, which increases the risk over time of someone filing a lawsuit due to suffering an injury on the real estate developer's property.
Depending upon the severity, businesses are much more likely to be able to bounce back from these sorts of adverse occurrences if they have the proper insurance policies that will provide adequate coverage for them. Therefore, your LLLP should meet with a qualified business insurance agent to assess the risks that are associated with your business and to determine which insurance policies can protect your business.
Conclusion
Once these initial steps have been taken, your limited liability limited partnership will be well established and sitting upon a solid foundation. By successfully fulfilling these first steps, you will ensure that your LLLP will be getting off to a strong start, which will greatly improve your standing and stability as a company moving forward.
