Partnerships are one of the business entities most often chosen by groups seeking to form a business. Unlike a general partner in a general partnership, a partner in a limited liability partnership (LLP) cannot be personally liable for most of the business’s financial obligations, with certain limited exceptions.
Professional service firms, such as law firms and accounting firms, frequently prefer the LLP form for their businesses. This is because each partner is solely responsible for their own professional liability only and is not liable for any other partner’s misconduct or negligence. However, in Maine, businesses of all types are allowed to register as LLPs.
A professional firm can also operate as an LLP in every state other than Maine, which is an advantage to adopting that form of business. Professional firms cannot operate as limited liability corporations in every state.
The process of forming an LLP may vary in different states, but the process in Maine is quite straightforward. In Maine, the Limited Liability Partnership Act governs the creation and management of LLPs. The Secretary of State is responsible for the registration of limited liability partnerships. All of the necessary forms are available on the website of the Secretary of State.
What Are the Requirements for a Limited Liability Partnership in Maine?
Unlike some states, any business can become an LLP in Maine. However, the LLP must have at least two partners. Of course, a sole proprietor cannot form an LLP.
If a partnership operates under an assumed name, that is, something other than the partners’ surnames, the name of the business must be registered with the state Secretary of State’s Bureau of Corporations, Elections and Commissions. Additionally, the name must include the “LLP” designation at the end of the name to give notice to the public of the status of the business as an LLP.
Finally, the partnership must designate a registered agent for the LLP. A registered agent is authorized to accept important documents for the business, such as the paperwork that initiates a lawsuit. If a person forming an LLP needs help selecting a registered agent, a Maine business lawyer can help with the process.
What Paperwork Do I Need to Form a Limited Liability Partnership?
To create a limited liability partnership, the partners must file a Certificate of Limited Liability Partnership with the Maine Secretary of State. This form can be submitted either in person, by mail or online.
The partners must provide the following information on their registration form:
- The name of the partnership,
- Information about its registered agent:
- If the partnership hires a commercial agent, it must list the agent’s name and CRA number;
- If it uses a noncommercial registered agent, it must list the agent’s name, physical address, and mailing address;
- A contact partner’s names and addresses; and
- The signatures of the partners.
The partnership may have to file additional paperwork if it plans on operating under an assumed name.
In addition to the paperwork connected to its formation, an LLP must file an annual report every year in order to maintain its good standing status in the state of Maine. June 1 is the annual filing deadline for the annual report.
In addition to filing all of the documents required by Maine state law, partners should seriously consider having a written partnership agreement. A partnership agreement defines the rights and responsibilities of the partners and can include other helpful provisions regarding its operations.
A good partnership agreement should have provisions addressing a number of issues. An experienced business lawyer can draft a comprehensive partnership agreement that is tailored to the needs of individual partnerships.
Some of the following provisions should be considered:
- Name: The name of the business;
- Purpose: What the purpose and mission of the business are;
- Information about Partners: The names and contact information for all of the partners;
- Capital Contributions: Describe the contributions of capital, e.g. money and other tangible assets that each partner has contributed to the partnership;.
- Ownership Interest: The specific percentage of the partnership that each partner owns;
- Profit and Loss Distribution: Explain the percentage of profit and loss assigned to each partner and how the company will distribute revenue;
- Management and Voting: Outline how the partners will manage the company by delineating the responsibilities of each partner, especially whether one partner is going to be the managing partner;
- Dispute Resolution: The partners may want provisions in their agreement regarding how disputes will be resolved and whether alternative dispute resolution methods are to be used in the event of disagreements between the partners or between the partners and it clients or employees;
- Decision-making: How important decisions are to be made;
- Voting: How votes are assigned if there is going to be voting on management issues;
- Adding and Removing Partners: The agreement should contain specific guidelines for adding new partners, removing partners who want to leave, and removing partners who do not leave voluntarily; .
- Dissolution: Describe how the partnership will decide to liquidate the business and share out any final profits;
- Partnership Tax Affairs: The partners can assign a partnership representative to manage its communications regarding taxes;
- Death or Disability: Provide clear instructions as to what should happen if an owner dies or becomes unable to participate in the partnership for whatever reason, including how a partner’s ownership interest should be liquidated.
A well-drafted, written partnership agreement can prevent costly litigation if disputes occur.
What Benefits Does Maine Offer to a Limited Liability Partnership?
Limited liability partnerships have specific legal advantages. First, an LLP does not have to pay income tax as a partnership on its income. Instead, its income is distributed through to its partners. They are required to report this income to the Internal Revenue Service and the taxing authority for the state of Maine and pay state and federal income taxes on it.
And, a partner should not be personally liable for the LLP’s debts or a partner’s negligence and misconduct. In other words, a partner’s personal assets cannot be reached to pay the debts of the partnership, unless the partner has personally guaranteed payment in a particular situation.
What Disadvantages Does Maine Offer a Limited Liability Partnership?
Maine does not protect the partners in an LLP from every possible business obligation. A partner may still be personally liable if they personally engage in misconduct, are negligent, or personally guarantee a debt. If a group of professionals form a limited liability partnership, each one must still have the appropriate professional liability insurance to cover any losses they incur due to liability for professional malpractice., for example
If a person is concerned about professional liability, they might consider starting up as a limited liability company (LLC) or an S corporation instead. These business entities may offer additional financial and legal protection to its owners. Of course, different laws apply to LLPs, LLCs and corporations in Maine. A business lawyer can always help a person or group review the legal landscape for each and decide which business structure is best for their purposes.
Should I Hire a Business Lawyer to Form an LLP?
While completing forms is a simple process, a lot more goes into the structuring of a limited liability partnership. For example, a group of potential partners should have a legally binding partnership agreement that is tailored to the needs and concerns of their partnership and not a template from the internet.
A Maine corporate lawyer can take care of all necessary procedures, including those required for naming the partnership and setting up a tax identification number. An expertly drafted partnership agreement is going to provide the best protection for your professional and financial interests. They can also advise you on liability insurance policies and whether other kinds of insurance are needed.
