How to Form a LLP in Alabama

A limited liability partnership (LLP) is a type of business arrangement that allows the respective partners to be free from the debts and liabilities of all of the other partners and certain debts and liabilities. In action brought against the partnership, no single partner is personally liable. In this way, it differs from a general partnership, in which all partners are responsible for the partnership’s debts and obligations.

A limited liability partnership is similar to a general partnership. All partners can actively participate in the management of the business, and losses and gains from the business are passed through to the partners according to their partnership agreement. Unlike a “limited partnership,” the LLP authorizes owning partners to have a vigorous role in management while being shielded from personal liability.

What Are the Requirements for an LLP?

In Alabama, the requirements to form an LLP are the following:

• File a Statement of Qualification: To form an Alabama Limited Liability Partnership, you must file a Statement of Qualification with the Alabama Secretary of State. The filing registration fee is $100.
• Name of Your Limited Partnership: You must also name the LLP and be sure to check that the name of the LLP is not used and unique from other business entities of trademarks in Alabama. The name of an Alabama LLP has to include the words “registered limited liability partnership,” “limited liability partnership,” the abbreviation “LLP,” or the designation “RLLP” or “LLP” in uppercase or lowercase letters.
• Statutory Agent: Every Alabama LLP must have a statutory agent representing the LLP in any matter or taking legal papers on behalf of the LLP. The statutory agent must be a resident of the state with a P
• Get EIN: Since an LLP is a separate entity from its partners, you would need to get a federal Employer Identification Number from the IRS.
• Publication Requirement: Within 60 days that the Corporate Divisions approves the Statement of Qualification for the LLP, a copy of the Statement of Qualification must be published in the county of the LLP’s principal place of business.
• Partnership Agreement: In Alabama, a partnership agreement is not required when forming an LLP, but it is recommended. A partnership agreement would state what each partner can and cannot do when making business decisions.
• Register with the Department of Revenue & Get Business Licenses: Depending on the type of business you have, you need to register with the department of revenue DOR if you are selling goods, collecting tax, and obtaining a business license.
• File Annual Report: In Alabama, you must file an Annual Notice with the Secretary of State.

What Paperwork Do I Need to Form an LLP?

To form an Alabama Limited Liability Partnership, you must file a Statement of Qualification with the Corporate Division with the following information:

• Official Name of the LLP
• Address of office of LLP
• Address of the agents of LLP
• Name and Address of each partner of the LLP

How Do You Make a Successful Partnership Agreement?

A partnership agreement is not required for an Alabama LLP but is recommended. A partnership agreement is an agreement between the partners that describes the relationship that each partner has with the business and outlines the rights and obligations that each partner has to the partnership.

It may also include:

• The amount or portion of the partnership owned by each partner;
• Which partners have the power to make business decisions on behalf of the partnership;
• The strategy the partners will use to resolve business disputes among the partners;
• How the partnership can be dissolved or transferred;
• The process of adding new partners; and
• Any other policies or procedures that the partners have to make significant decisions or handle essential aspects of the partnership.

The more detailed the partnership agreement is, the more likely it will be successful. The partnership agreement should solve every foreseeable and possible problem that could stem and harm the business. This will also help to bolster the partnership itself.

Additionally, while partnership agreements may be formed orally or impliedly (by the partners’ actions), it is best to write the partnership agreement. That way, the agreement may act as a reference to settle disagreements quickly or can be used as evidence to solve any future legal problems, should they arise.

Who Has Control in a Partnership?

Control in a partnership can be determined by focusing on three primary factors:

• Ownership
• Management, and
• The authority to do business
• This is why it is essential to define these concepts and which partners they apply to in a partnership agreement.

Unless the partnership agreement states otherwise, all partners have equal rights to control a partnership. This means that issues such as decisions regarding ordinary day-to-day business operations require the partners’ majority vote.

However, matters outside the scope of daily business decisions will require the consent of all the partners (e.g., selling the partnership).

What Benefits Does Alabama Give to an LLP?

There are several benefits of having a limited liability partnership in Alabama. These benefits are:

• Limited Liability: Limited partners are all protected in an LLP, and every partner gets management control of the business.
• Tax Benefits: The profits and losses in an LLP flow through the business to the partners, all of who are taxed on their income tax returns and get to share the profits and losses and are not held to double tax
• Flexibility: Limited liability partnerships offer business owners and partners flexibility in business ownership. Partners have the right and control to decide how they will individually contribute to business operation and management. They can also divide the business duties based on the experience of each partner.

What Disadvantages Does Alabama Give to an LLP?

While Alabama offers many advantages for LLPs, they have some drawbacks as well, such as:

• Death of a Partner: LLPs are automatically dissolved upon the death of a partner even if the other partners want it to persist.
• Partners Do Not Have to Agree: In an LLP, the partners do not need to consult over certain business decisions. A partnership agreement is recommended before the LLP is formed to state what each partner can and cannot do.
• No IPO: LLPs cannot get money from the public, and they cannot go for an IPO.

Who Is Liable for Acts of Negligence in an LLP?

While the partners in an LLP are not liable for their co-partners acts of negligence or misconduct, they are personally responsible for their negligent acts.

The partners are only protected from individual liability when the wrongful conduct was committed by the partnership itself (which exists as a separate legal entity from its constituent members) or by other partners.

Can an LLP Sue its Individual Partners?

A limited liability partnership may sue, in its own capacity, individual partners. This could include actions for breaching the partnership agreement or causing damage to the partnership.

An individual partner may also sue the partnership to enforce the partnership agreement, enforce their right to relevant information about the partnership, and their rights to an equal share of profits generated by the business.

Can One Partner in an LLP Sue Another Partner?

As to lawsuits between partners, there are no particular rules when the partner is suing another partner for behavior that had nothing to do with the partnership (for instance, if one partner hit the other with their vehicle).

Nevertheless, if the partner acted with the authority of the partnership against another partner privately, the injured partner will likely sue the partnership.

Should I Hire a Lawyer?

The selection of the correct business entity is vital to the success and organization of an organization. Hiring a local Alabama corporate lawyer familiar with LLPs will help you analyze the pros and cons of choosing a particular business entity. If you decide an LLP is suitable for you, a lawyer can help you draft your state’s required filing documents.