How to Form a LLP in Arkansas

Choosing a business management structure is an important choice when setting up a business because it can affect many issues, including:

• How much money business owners can collect from investors;
• The number of members who are allowed to sit on the company board;
• How the business will be taxed.

There are many different types of business arrangements that business owners may choose from. Some structures require that business owners comply with certain formational rules.

For example, if individuals enter into a limited partnership (LP). The rules for a limited partnership require that there is at least one general partner who is assigned to manage the entire business and at least one limited partner in order to operate as a lawful limited partnership.

Some factors that a business owner should consider when selecting a business management structure include:

• The number of individuals who are forming the business, for example:
  • a single proprietor;
  • multiple members;
  • etc.;
• Whether the owner or owners want to issue stocks and raise money from investors;
• Both federal and state tax laws to evaluate the tax incentives that each business management structure provides;
• How much control the owner wishes to have over company assets and decisions;
• The amount of money that the owner or owners are willing to spend in order to register their business; or
• The potential risks and liabilities that the owners are willing to incur, both personally and professionally;
  • An example of this would be how an individual who wants to protect their personal assets from creditors should probably choose to form an LLC.

Additionally, a new business owner should consider the following:

• Wind-up or termination procedures;
• The rights that the owner or owners want to possess should they sell or expand on the business;
• Their comfort level in having company details exposed to the general public;
  • An example of this would be the difference between general public information required corporations are required to disclose versus sole proprietorships.

What Is a Limited Liability Partnership (LLP)?

There are four different types of partnerships individuals can form. Typically, a general partnership is most commonly chosen by new business owners.

A general partnership is formed when two or more individuals are co-owners of a for-profit business. As long as both individuals intend to make money from a service or product they offer, they are deemed to have entered into a general partnership.

Limited partnerships have considerably stricter requirements than general partnerships. As previously noted, limited partnerships must have at least one general partner to oversee and manage the company in addition to at least one limited partner.

A limited liability partnership (LLP) is a business structure that allows individual partners to be free from the debts and liabilities of all of the other partners. The partners will also not be held personally liable for the liabilities and debts of the partnership.

If legal action is brought against the partnership, none of the partners themselves will be held personally liable. Although partners in an LLP will not be held liable for acts of negligence or misconduct by another partner, they can be held personally liable for their own negligence.

The partners in the LLP are only shielded from individual liability when the partnership itself committed the wrongful behavior because it exists as a separate legal entity from its constituent members. In a limited liability partnership, the partners must register the business with the state.

What Are the Requirements to Start an LLP in Arkansas?

There are several requirements in Arkansas to create an LLP, including, but not limited to:

1. Filing a statement of qualification: In order to form an Arkansas Limited Liability Partnership, the LLP must file a Statement of Qualification. An individual will also need to pay a filing fee, both of which are made to the Arkansas Secretary of State;
2. Naming the limited partnership: An individual will need to name the LLP while ensuring that the name of the LLP is unique from other business entities of trademarks in Arkansas.
   • The name of an Arkansas LLP must include the words:
     • “Registered limited liability partnership;”
     • “Limited liability partnership;”
     • The abbreviation “L.L.P.;”
     • The designation “RLLP” or “LLP” in either uppercase or lowercase letters;
3. Statutory agent: Every Arkansas LLP has to have a statutory agent. This is an individual who will represent the LLP in any matter, and can receive legal papers on behalf of the LLP;
4. Obtain an EIN: Because an LLP is a separate entity from its partners, an individual will need to obtain a federal Employer Identification Number (EIN) from the IRS. This number is unique to every business, and is associated with taxing the business;
5. Register with the Department of Finance: Depending on the specific type of business, an individual may need to register with the Department of Revenue in Arkansas;
6. Partnership agreement: Partnership agreements are not required when forming an LLP;
7. Obtain all business licenses: The exact business licenses that an individual will need in order to conduct business as an LLP in Arkansas will vary according to the specific type of business that they own; and
8. File annual report: In Arkansas, an individual is required to file an Annual Notice with the Secretary of State. They will also need to pay a filing fee.

What Paperwork Do I Need to Form an LLP?

There are several paperwork requirements to form an LLP in Arkansas, including, but not limited to:

• Application for Registration of LLP;
• Statement of Qualification of LLP;
• Any other necessary documents.

These documents can be found online at the Arkansas Secretary of State website. The fee for each is also listed.

Although Arkansas laws do not require an LLP to have a partnership agreement, it is important to have one because they outline the duties and responsibilities of the parties involved in the business. Whether or not the LLP will require the partners to obtain a business license will depend on the jurisdiction and the business conducted. Because of this, it is important to consult with a local attorney to determine if one is needed.

What Benefits Does Arkansas Give to an LLP?

The benefits provided to LLPs in Arkansas are similar to those of other states, such as partners not being held personally liable for the debts of the business. One of the benefits of forming LLPs is pass-through taxation.

All of the income and losses of the business are passed through the business to the partners. The partners report the income and losses on their personal tax returns.

Arkansas laws do not allow for an IPO or initial public offering for LLPs.

What Disadvantages Does Arkansas Give to an LLP?

There are certain disadvantages to forming an LLP, which may include, but may not be limited to:

• No ability to file taxes as an S corporation;
• An LLP must have at least two partners;
• An LLP must have a managing partner. However, all of the partners must help run the business.

Should I Hire a Lawyer?

If you are considering forming an Arkansas LLP or are in the process of forming an LLP, you should consult with an Arkansas corporate lawyer who is familiar with LLPs. Your lawyer can help you decide whether an LLP is the best business management structure for your business.